**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-Q**




(Mark
      One)


x
      Quarterly Report
      Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934




**For
      the quarterly period ended September 30, 2006**


or


o
      Transition Report
      Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934




For
      the
      transition period from  to




**Commission
      File Number 000-51368**




**TBS
      INTERNATIONAL LIMITED**


(Exact
      name of registrant as specified in its charter )


**Bermuda**
            **98-0225954**(State
                or other jurisdiction of
              incorporation
                or organization)
            (IRS
                Employer Identification No.)**Commerce
                Building,**
              **Chancery
                Lane,**
              **Hamilton
                HM 12, Bermuda**(Address
                of principal executive offices)**(441)
                295-9230**(Registrant's
                telephone number, including area
                code)




(Former
                name, former address and former fiscal year, if changed since last
                report)




Indicate
                by check mark whether the registrant (1) has filed all reports
                required to be filed by Section 13 or 15(d) of the Securities
                Exchange Act of 1934 during the preceding 12 months (or for such
                shorter
                period that the registrant was required to file such reports), and
                (2) has been subject to such filing requirements for the past 90
                days. YesxNo ̈Indicate
                by check mark whether the registrant is a large accelerated filer,
                an
                accelerated filer or a non-accelerated filer. (See definition of
                "accelerated filer and large accelerated filer") in Rule 12b-2 of
                the
                Act).
              Large
                Accelerated Filer ̈Accelerated
                Filer ̈Non-accelerated
                FilerxIndicate
                by check markwhether
                the registrantis
                a shell company (as defined by Rule 12b-2 of the Act).
                Yes ̈Nox





As
                of November 1, 2006, the registrant had outstanding 14,319,996 Class
                A
                common shares, par value $0.01 per share, and 13,404,461 Class B
                common
                shares, par value $0.01 per share.







**TBS
                INTERNATIONAL LIMITED****FORM
                10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
                2006****Table
                of Contents****Page****PART
                I:  FINANCIAL INFORMATION**Item
                1
            Financial
                StatementsConsolidated
                Balance Sheets as of December 31, 2005
                and September 30, 2006 (Unaudited)
            
            3Consolidated
                Statements of Income (Unaudited)
                for the three and nine months ended September 30, 2005 and September
                30,
                2006
            
            4Consolidated
                Statements of Cash Flows
                (Unaudited) for the nine months ended September 30, 2005 and September
                30,
                2006
            
            5Consolidated
                Statement of Changes in
                Shareholders' Equity (Unaudited) for the nine months ended September
                30,
                2006
            
            6Notes
                to Unaudited Consolidated
                Financial Statements
            
            7Item
                2
            Management’s
                Discussion and Analysis of
                Financial Condition and Results of Operations
            
            18Item
                3
            Quantitative
                and Qualitative
                Disclosures About Market Risk
            
            41Item
                4
            Controls
                and Procedures
            
            41**PART
                II:  OTHER INFORMATION**Item
                1
            Legal
                Proceedings
            
            42Item
                1A
            Risk
                Factors
            
            42Item
                2
            Unregistered
                Sales of Equity Securities
                and Use of Proceeds
            
            42Item
                3
            Defaults
                Upon Senior Securities
            
            42Item
                4
            Submission
                of Matters to a Vote of
                Security Holders
            
            42Item
                5
            Other
                Information
            
            42Item
                6
            Exhibits
            
            43Signatures
            
            44





















2


**Part
      I.    FINANCIAL
      INFORMATION**


**Item
      1.    Financial Statements**


**TBS
      INTERNATIONAL LIMITED AND SUBSIDIARIES**


CONSOLIDATED
      BALANCE SHEETS




**December
                  31,**
              
              **September
                  30,****2005**
              
              **2006****(Unaudited)****Assets**Current
                  assetsCash
                  and cash equivalents
              
              $
              27,157,681
              
              $
              15,732,261Charter
                  hire receivable, net of allowance of $694,214 in 2005 and$468,546
                  in 2006
              
              
              25,548,113
              
              
              16,351,109Claims
                  receivable
              
              
              457,087
              
              
              2,160,144Due
                  from agents
              
              
              570,763
              
              
              1,598,334Other
                  receivables
              
              
              398,246
              
              
              1,023,941Fuel
                  and other inventories
              
              
              7,635,432
              
              
              7,520,711Prepaid
                  expenses
              
              
              2,186,500
              
              
              2,244,957Advances
                  to affiliates
              
              
              9,841
              
              
              114,162Total
                  current assets
              
              
              63,963,663
              
              
              46,745,619Restricted
                  cash
              
              
              532,500
              
              
              -Deposit
                  for vessel purchases
              
              
              
              
              
              9,020,000Vessels,
                  net of accumulated depreciation of $42,420,572in
                  2005 and $58,781,872 in 2006
              
              
              266,930,678
              
              
              268,990,898Other
                  fixed assets, net of accumulated amortization of $917,299in
                  2005 and $1,585,157 in 2006
              
              
              2,589,232
              
              
              5,376,357Deferred
                  financing charge,net
              
              
              
              
              
              2,597,011Goodwill
              
              
              8,425,935
              
              
              8,425,935Investment
                  in joint venture
              
              
              -
              
              
              591,675Total
                  assets
              
              $
              342,442,008
              
              $
              341,747,495**Liabilities
                  and Shareholders' Equity**Current
                  liabilitiesDebt,
                  current portion
              
              $
              31,458,053
              
              $
              19,770,000Obligations
                  under capital lease, current portion
              
              
              3,348,340
              
              
              3,969,401Accounts
                  payable
              
              
              4,726,588
              
              
              4,554,885Accrued
                  expenses
              
              
              25,958,807
              
              
              20,299,229Voyages
                  in progress
              
              
              2,118,901
              
              
              1,614,480Advances
                  from affiliates
              
              
              1,408,658
              
              
              243,998Total
                  current liabilities
              
              
              69,019,347
              
              
              50,451,993Debt,
                  long-term portion
              
              
              74,279,409
              
              
              71,976,533Obligations
                  under capital lease, net of current portion
              
              
              21,354,681
              
              
              18,334,440Total
                  liabilities
              
              
              164,653,437
              
              
              140,762,966
         COMMITMENTS
                  AND CONTINGENCIES (Note 12)Shareholders'
                  equityCommon
                  shares, New Class A, $.01 par value, 75,000,000authorized,
                  14,319,996 shares issued and outstanding
              
              
              142,905
              
              
              143,200Common
                  shares, New Class B, $.01 par value, 30,000,0000authorized,
                  13,404,461 shares issued and outstanding
              
              
              134,045
              
              
              134,045Warrants
              
              
              20,747
              
              
              20,747Additional
                  paid-in capital
              
              
              87,585,744
              
              
              87,880,449Retained
                  earnings
              
              
              89,905,130
              
              
              112,806,088Total
                  shareholders' equity
              
              
              177,788,571
              
              
              200,984,529Total
                  liabilities and shareholders' equity
              
              $
              342,442,008
              
              $
              341,747,495







Table
          of Contents
 3


**TBS
      INTERNATIONAL LIMITED AND SUBSIDIARIES**


CONSOLIDATED
      STATEMENTS OF INCOME (UNAUDITED)




**Three
                Months Ended September 30,**
            
            **Nine
                Months Ended September 30,****2005**
            
            **2006**
            
            **2005**
            
            **2006****Revenue**Voyage
                revenue
            
            $
            39,243,430
            
            $
            47,880,324
            
            $
            129,363,294
            
            $
            141,007,993Time
                charter revenue
            
            
            19,262,340
            
            
            16,914,474
            
            
            50,486,985
            
            
            45,910,831Other
                revenue
            
            
            513,020
            
            
            606,928
            
            
            598,276
            
            
            1,232,527Total
                revenue
            
            
            59,018,790
            
            
            65,401,726
            
            
            180,448,555
            
            
            188,151,351**Operating
                expenses**Voyage
            
            
            17,539,870
            
            
            21,857,064
            
            
            53,861,763
            
            
            63,764,712Vessel
            
            
            16,063,285
            
            
            16,324,322
            
            
            52,246,517
            
            
            52,754,283Depreciation
                and amortization of vesselsand
                other fixed assets
            
            
            5,486,438
            
            
            7,211,259
            
            
            11,791,899
            
            
            20,559,579Management
                fees
            
            
            58,635
            
            
            -
            
            
            2,624,391
            
            
            -General
                and administrative
            
            
            5,015,531
            
            
            6,882,792
            
            
            11,486,014
            
            
            19,249,641Gain
                from sale of vessel
            
            
            -
            
            
            (2,179,820
            )
            
            -
            
            
            (2,179,820
            )Total
                operating expenses
            
            
            44,163,759
            
            
            50,095,617
            
            
            132,010,584
            
            
            154,148,395Income
                from operations
            
            
            14,855,031
            
            
            15,306,109
            
            
            48,437,971
            
            
            34,002,956**Other
                (expenses) and income**Interest
                expense
            
            
            (2,817,468
            )
            
            (6,290,500
            )
            
            (6,621,532
            )
            
            (11,902,643
            )Other
                income
            
            
            239,227
            
            
            198,478
            
            
            411,148
            
            
            800,645Total
                other expenses, net
            
            
            (2,578,241
            )
            
            (6,092,022
            )
            
            (6,210,384
            )
            
            (11,101,998
            )Net
                income
            
            
            12,276,790
            
            
            9,214,087
            
            
            42,227,587
            
            
            22,900,958Amount
                allocated to participating preferred shareholders
            
            
            -
            
            
            -
            
            
            (6,092,408
            )
            
            -Net
                income available for common shareholders
            
            $
            12,276,790
            
            $
            9,214,087
            
            $
            36,135,179
            
            $
            22,900,958Earnings
                per shareNet
                income per common shareBasic
            
            $
            0.44
            
            $
            0.33
            
            $
            1.82
            
            $
            0.82Diluted
            
            $
            0.44
            
            $
            0.33
            
            $
            1.57
            
            $
            0.82Weighted
                average common shares outstandingBasic
            
            
            27,983,829
            
            
            28,013,310
            
            
            19,809,880
            
            
            27,993,968Diluted
            
            
            28,088,329
            
            
            28,088,310
            
            
            23,037,937
            
            
            28,088,310






Table
          of Contents
 4


**TBS
      INTERNATIONAL LIMITED AND SUBSIDIARIES**


CONSOLIDATED
      STATEMENTS OF CASH FLOWS (UNAUDITED)


**Nine
                  months ended September 30,****2005**
              
              **2006****Cash
                  flows from operating
                  activities**Net
                  income
              
              $
              42,227,587
              
              $
              22,900,958Adjustments
                  to reconcile net income to net cashprovided
                  by operating activitiesGain
                  on sale of vessel
              
              
              -
              
              
              (2,179,820
              )Depreciation
                  and amortization
              
              
              11,791,899
              
              
              20,559,579Amortization
                  and write-off of deferred financing costs
              
              
              
              
              
              1,989,881Non
                  cash stock based compensation
              
              
              1,069,000
              
              
              210,000Income
                  in joint venture
              
              
              -
              
              
              (32,828
              )Changes
                  in operating assets and liabilitiesDecrease
                  in charter hire receivable
              
              
              1,213,625
              
              
              9,197,004(Increase)
                  in claims receivable
              
              
              (230,091
              )
              
              (1,703,057
              )(Increase)
                  in due from agents
              
              
              (274,621
              )
              
              (1,027,571
              )Decrease
                  (increase) in other receivables
              
              
              53,383
              
              
              (684,542
              )(Increase)
                  decrease in fuel and other inventories
              
              
              (2,348,657
              )
              
              114,721Decrease
                  (increase) in prepaid expenses
              
              
              1,336,094
              
              
              (58,457
              )(Decrease)
                  in accounts payable
              
              
              (900,922
              )
              
              (171,703
              )Increase
                  (decrease) in accrued expenses
              
              
              3,331,659
              
              
              (5,528,978
              )(Decrease)
                  in voyages in progress
              
              
              (1,308,702
              )
              
              (504,421
              )(Decrease)
                  in advances from/to affiliates, net
              
              
              (2,397,293
              )
              
              (1,268,981
              )Net
                  cash provided by operating activities
              
              
              53,562,961
              
              
              41,811,785**Cash
                  flows from investing activities**Proceeds
                  on sale of vessel
              
              
              -
              
              
              3,160,500Vessels
                  acquisition/capital improvement costs
              
              
              (143,735,228
              )
              
              (28,191,621
              )Deposits
                  for vessel purchases
              
              
              (1,850,000
              )
              
              (9,020,000
              )Restricted
                  cash for litigation / reclassification to other
                  receivables
              
              
              (532,500
              )
              
              532,500Payment
                  for purchase of TBS Shipping Services Inc and Roymar ShipManagement
                  Inc., net of cash acquired of $801,594
              
              
              (7,289,895
              )
              
              -Investment
                  in joint venture
              
              
              -
              
              
              (500,000
              )Net
                  cash used in investing activities
              
              
              (153,407,623
              )
              
              (34,018,621
              )**Cash
                  flows from financing activities**Dividends
                  paid
              
              
              (150,000
              )
              
              -Proceeds
                  on sale of TBS International Limited shares owned by
                  subsidiaries
              
              
              795,336
              
              
              -Proceeds
                  from issuance of shares in initial public offering and exercise
                  ofseries
                  A warrants, net of offering costs
              
              
              60,841,169
              
              
              -Repayment
                  of debt principal
              
              
              (20,805,260
              )
              
              (107,965,462
              )Proceeds
                  from debt
              
              
              77,500,000
              
              
              93,974,533Payment
                  of deferred financing costs
              
              
              -
              
              
              (2,828,475
              )Proceeds
                  from revolving debt facility
              
              
              12,000,000
              
              
              -Repayment
                  of revolving debt facility
              
              
              (12,000,000
              )
              
              -Reduction
                  of obligations under capital leases
              
              
              (4,987,438
              )
              
              (2,399,180
              )Net
                  cash provided by (used in) financing activities
              
              
              113,193,807
              
              
              (19,218,584
              )Net
                  increase (decrease) in cash and cash equivalents
              
              
              13,349,145
              
              
              (11,425,420
              )Cash
                  and cash equivalents beginning of period
              
              
              21,674,204
              
              
              27,157,681Cash
                  and cash equivalents end of period
              
              $
              35,023,349
              
              $
              15,732,261**Supplemental
                  cash flow information**Interest
                  paid
              
              $
              5,848,391
              
              $
              7,668,126







Table
          of Contents
 5


**TBS
      INTERNATIONAL LIMITED AND SUBSIDIARIES**


CONSOLIDATED
      STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)




**Additional****Common
                  Shares**
              
              **Warrants**
              
              **Paid-in**
              
              **Retained****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Capital**
              
              **Earnings**
              
              **Total**Balance
                  at December 31, 2005
              
              
              27,694,957
              
              $
              276,950
              
              
              288,853
              
              $
              20,747
              
              $
              87,585,744
              
              $
              89,905,130
              
              $
              177,788,571Shares
                  issued under IncentiveStock
                  Plan
              
              
              29,500
              
              
              295
              
              
              
              
              
              
              
              
              294,705
              
              
              
              
              
              295,000Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              22,900,958
              
              
              22,900,958Balance
                    at September 30, 2006
              
              
              27,724,457
              
              $
              277,245
              
              
              288,853
              
              $
              20,747
              
              $
              87,880,449
              
              $
              112,806,088
              
              $
              200,984,529








Table
          of Contents
 6





**Note
      1 — Basis of
      Presentation**




TBS
      International Limited (the "Company" or "we") is a fully integrated ocean
      transportation services company that offers worldwide shipping solutions through
      liner, parcel and bulk services, and vessel chartering. Substantially all owned
      corporations of the Company are foreign corporations and conduct their business
      operations worldwide. The accompanying unaudited consolidated financial
      statements have been prepared in accordance with generally accepted accounting
      principles for interim financial information and with the instructions to Form
      10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
      of
      the information and footnotes required by generally accepted accounting
      principles for complete financial statements. In the opinion of management,
      all
      adjustments (consisting of normal recurring accruals) considered necessary
      for a
      fair presentation have been included. Operating results for the nine month
      period ended September 30, 2006 are not necessarily indicative of the results
      that may be expected for the year ended December 31, 2006.




The
      consolidated balance sheet at December 31, 2005 has been derived from the
      audited financial statements at that date, but does not include all of the
      information and footnotes required by generally accepted accounting principles
      for complete financial statements.




For
      further information, refer to the consolidated financial statements and
      footnotes thereto for the year ended December 31, 2005 included in the Company's
      filing on Form 10-K filed on March 16, 2006.




**Note
      2 — New** **Accounting
      Pronouncements**




In
      September 2006, the SEC staff issued Staff Accounting Bulletin (SAB) No. 108, *“Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements”* (SAB
      108). SAB 108 was issued in order to eliminate the diversity of practice in
      how
      public companies quantify misstatements of financial statements, including
      misstatements that were not material to prior years’ financial statements. We
      will initially apply the provisions of SAB 108 in connection with the
      preparation of our annual financial statements for the year ending December
      31,
      2006. We are in the process of determining the impact, if any, that SAB 108
      may
      have on our consolidated financial statements; however, we do not believe that
      the impact of the application of this guidance will be material.




In
      September 2006, the Financial Accounting Standards Board ("FASB") issued
      Statement of Financial Accounting Standards ("SFAS") No. 157, " *Fair
      Value Measurements* "
      ("SFAS
      157"), which defines and establishes a framework for measuring fair value and
      expands disclosures about fair value measurements. The accounting provisions
      of
      SFAS 157 are effective for the Company beginning on January 1, 2008. We are
      in the process of evaluating the effect, if any, that the adoption of SFAS
      157
      will have on our consolidated financial statements.




On
      September 8, 2006, the FASB issued a FASB Staff Position (“FSP”) which addressed
      the accounting for planned major maintenance activities. This FSP amends certain
      provisions in the American Institute of Certified Public Accountants ** ("AICPA"),
      Industry Audit Guide, *Audits
      of Airlines* ("Airline
      Guide"), which is the principal source of guidance on the accounting for planned
      major maintenance and is relevant to both the aviation and maritime industries.
      The Airline Guide, prior to the amendment, permitted four alternative methods
      of
      accounting for planned major maintenance activities: direct expense, built-in
      overhaul, deferral, and accrual (accrue-in-advance). We currently use the
      accrual method to account for planned major maintenance. Under this method,
      we
      estimate the cost of a future dry-docking and accrue the monthly cost over
      the
      period through the date of the dry-docking. The new FSP would prohibit the
      use
      of the accrual method. We are in the process of determining the retrospective
      effect on our consolidated financial statements of the change to the deferral
      method. Under the deferral method of accounting for dry-docking, the actual
      costs incurred are deferred and are amortized on a straight-line basis over
      the
      period through the date of the next dry-docking. The amended guidance in the
      FSP
      will apply to the Company beginning on January 1, 2007, although earlier
      adoption is encouraged.




Table
          of Contents
 7


In
      July
      2006, the FASB issued FASB Interpretation No. 48 ("FIN 48") " *Accounting
      for Uncertainty in Income Taxes* "
      which
      prescribes a recognition threshold and measurement process for recording in
      the
      financial statements uncertain tax positions taken or expected to be taken
      in a
      tax return. Additionally, FIN 48 provides guidance on the derecognition,
      classification, accounting in interim periods and disclosure requirements for
      uncertain tax positions. The accounting provisions of FIN 48 will be effective
      for the Company beginning January 1, 2007. We are in the process of
      determining the effect, if any, that the adoption of FIN 48 will have on our
      consolidated financial statements.




In
      May
      2005, the FASB issued SFAS No. 154, " *Accounting
      Changes and Error Corrections* "
      ("SFAS
      154"), which replaces Accounting Principles Board Opinion ("APB") No. 20,
      " *Accounting
      Changes,"* and SFAS
      No. 3, " *Reporting
      Accounting Changes in Interim Financial Statements* ".
      SFAS
      154 changes the requirements for the accounting for and reporting of a change
      in
      accounting principle, and applies to all voluntary changes in accounting
      principles, as well as changes required by an accounting pronouncement in the
      unusual instance that it does not include specific transition provisions.
      Specifically, SFAS 154 requires retrospective application to prior period’s
      financial statements, unless it is impracticable to determine the
      period-specific effects or the cumulative effect of the change. SFAS 154 does
      not change the transition provisions of any existing pronouncement. SFAS 154
      is
      effective for the Company for all accounting changes and corrections of errors
      made beginning January 1, 2006.




In
      December 2004, the FASB issued SFAS No. 123R, " *Share-Based
      Payment* "
      ("SFAS
      123R"). SFAS 123R revises previously issued SFAS 123, " *Accounting
      for Stock-Based Compensation* ,"
      supersedes APB No. 25, " *Accounting
      for Stock Issued to Employees,* "
      and
      amends SFAS Statement No. 95, " *Statement
      of Cash Flows.* "
      SFAS
      123R requires the Company to expense the fair value of employee share options
      and other forms of share-based compensation for the annual periods beginning
      after June 15, 2005. The cost will be recognized over the period during which
      an
      employee is required to provide services in exchange for the award. The
      share-based award must be classified as equity or as a liability and the
      compensation cost is measured based on the fair value of the award at the date
      of the grant. In addition, liability awards will be re-measured at fair value
      each reporting period. The
      Company adopted SFAS 123R effective January 1, 2006, using the modified
      prospective method which requires measurement of compensation cost for all
      stock-based awards at fair value on date of grant and recognition of
      compensation over the service period for awards expected to vest. The adoption
      of SFAS 123R did not have a significant impact on the Company’s consolidated
      results of operations, cash flows or financial position because the use of
      the
      intrinsic value method under Accounting Principles Board Opinion No. 25,
      " *Accounting
      for Stock Issued to Employees* "
      previously used by the Company and the fair value base method currently used
      under SFAS 123R results in the same amount of compensation expense
      recognized. See Note 10 - Stock Plan.




**Note
      3 — Fuel and Other Inventories**




Fuel
      and
      other inventories consist of the following:




**Description**
              
              **December
                  31, 2005**
              
              **September
                  30, 2006**Fuel
              
              $
              5,970,795
              
              $
              5,513,703Lubricating
                  oil
              
              
              1,153,277
              
              
              1,656,604Other
              
              
              511,360
              
              
              350,404**TOTALS**
              
              **$**
              **7,635,432**
              
              **$**
              **7,520,711**




Table
          of Contents
 8


**Note****4 — Vessel Acquisitions/Sales**




On
      May 2,
      2006, the Company acquired the multipurpose tweendecker *Kibishio
      Maru,* which
      wa *s* renamed *Aztec Maiden,* for
      $8 . 1 million.
      On August 30, 2006, the Company entered into agreements, through two wholly
      owned subsidiaries to acquire the bulk carrier *Clipper
      Flamingo* for
      $23.1 million and the bulk carrier *Clipper
      Frontier* for
      $22.0
      million.  Both vessels are expected to be delivered in November
      2006 .




On
      August
      8, 2006, TBS International Limited, through a wholly owned subsidiary, agreed
      to
      sell the *Dakota
      Belle* for $3.2
      million. The vessel was delivered on September 27, 2006 and resulted in a gain
      on sale of $2.2 million.




**Note****5 — Advances to/from Affiliates**




Advances
      to/from affiliates, which are entities related to us through common
      shareholders, are non-interest-bearing, due on demand and expected to be
      collected or paid in the ordinary course of business, generally within the
      year.
      The Company typically advances funds to affiliates in connection with the
      payment of management fees, commissions and consulting fees. Advances from
      affiliates originated primarily from amounts due to affiliates for management
      fees, commissions and consulting fees earned.




**Note****6 — Accrued Expenses**




Accrued
      expenses consist of the following :


**Description**
              
              **December
                  31, 2005**
              
              **September
                  30,**
                **2006**Drydock
              
              $
              4,189,594
              
              $
              5,852,225Voyage
                  and vessel expenses
              
              
              17,695,881
              
              
              12,296,018Payroll
                  and related costs
              
              
              2,554,445
              
              
              1,494,300Commissions
              
              
              967,745
              
              
              189,500Cargo
                  claims
              
              
              369,999
              
              
              185,999Other
                  expenses
              
              
              181,143
              
              
              281,187**Total**
              
              $
              25,958,807
              
              $
              20,299,229





The
      drydocking expense for the three months ended September 30, 2005 and 2006 was
      $996,664, and $970,767, respectively. The drydocking expense for the nine months
      ended September 30, 2005 and 2006 was $2,580,783 and $3,182,783, respectively.




Table
          of Contents
 9


**Note
      7 — Financing**




The
      Company's outstanding debt balances were as follows:


**Interest
                  Rate at September 30, 2006**
              
              **December
                  31, 2005**
              
              
              **September
                  30, 2006**Bank
                  of America - term credit facility,expires
                  July 30, 2010
              
              7.68%
              $
              -
              
              $
              70,312,500Bank
                  of America - revolving credit facility,expires
                  July 30, 2010
              
              7.58%
              
              -
              
              
              15,814,033The
                  Royal Bank of Scotland creditfacility
                  loan, expires March 23, 2010
              
              6.94%
              
              6,385,000
              
              
              5,620,000AIG
                  credit facility loan
              
              
              
              35,180,209
              
              
              -Bank
                  of America credit facility loan
              
              
              
              21,875,000
              
              
              -GMAC
                  credit facility loan
              
              
              
              15,156,250
              
              
              -Merrill
                  Lynch credit facility loan
              
              
              
              17,500,000
              
              
              -Merrill
                  Lynch credit facility loan
              
              
              
              9,641,003
              
              
              -**Debt
                  balance**
              
              
              $
              **105,737,462**
              
              $
              **91,746,533**




The
      repayment of debt over the next five years and thereafter is as
      follows:




2006
                  (October 1, 2006 - December 31, 2006)
              
              
              
              
              
              $
              4,942,5002007
              
              
              
              
              
              
              19,770,0002008
              
              
              
              
              
              
              19,770,0002009
              
              
              
              
              
              
              19,770,0002010
              
              
              
              
              
              
              27,494,033Thereafter
              
              
              
              
              
              
              -$
              **91,746,533**




**Bank
      of America Credit Facility**




On
      July
      31, 2006, the Company, through its subsidiaries, entered into a $140.0 million
      credit facility (the "Credit Facility") with a syndicate of commercial lenders
      led by Bank of America. The Credit Facility is composed of a $75.0 million
      term
      loan facility ("Term Credit Facility") and a $65.0 million revolving credit
      facility ("Revolving Credit Facility"). Borrowings under the Credit Facility
      have been used to refinance existing term borrowings under credit facilities
      with GMAC, Merrill Lynch, AIG and Bank of America ("Existing
      Lenders").




Table
          of Contents
 10


Pursuant
      to the Credit Facility, the Company made a full drawdown on the term credit
      facility of $75.0 million and an initial drawdown of $10.0 million on the
      revolving credit facility to repay $80.9 million of outstanding principal and
      interest due on the loans with the Existing Lenders and $4.1 million to cover
      costs associated with the refinancing.




The
      Term
      Credit Facility provides a four-year self-amortizing term loan with quarterly
      principal payments of approximately $4.7 million beginning September 2006.
      The
      non-amortizing Revolving Credit Facility is due in July 2010. Interest on the
      Credit Facility is at the 30-day, 60-day or 90-day Eurodollar LIBOR rate, as
      selected by the Company, plus a margin rate based on the Company’s consolidated
      leverage ratio. The margin rate can vary, in .50% increments, between four
      pricing levels from 2.75% to 1.25%. The initial margin rate is 2.25% and becomes
      adjustable after December 31, 2006 and on or before March 31, 2007. In
      connection with the Credit Facility, the Company incurred deferred financing
      costs of $2.8 million in July 2006 that will be amortized over the term of
      the
      facility.




The
      Credit Facility is collateralized by, among other things, 24 of the Company’s
      vessels with a net book value at September 30, 2006 of $228.0 million, as well
      as by the Company’s equity interests in the subsidiaries that own the vessels.
      Each subsidiary of the Company with an ownership interest in the collateralized
      vessels has provided an unconditional guaranty and pledged any insurance
      proceeds received related to the vessels.




The
      credit facility agreement contains certain financial and non-financial
      covenants. The non-financial covenants include customary restrictions on the
      Company’s ability to incur indebtedness or grant liens, pay dividends under
      certain circumstances, enter into transactions with affiliates, merge,
      consolidate, or dispose of assets, and change the nature of its business. The
      financial covenants require that the Company maintain certain fixed charge
      and
      leverage ratios, as well as maintain tangible net worth within defined limits.
      The Company is also required to maintain minimum cash and cash equivalent
      balances and collateral coverage. At September 30, 2006, the Company was in
      compliance with all covenants.




**The
      Royal Bank of Scotland Credit Facility**




The
      credit facility with The Royal Bank of Scotland was for the original amount
      of
      $7.15 million. The Company drew down the full facility in December 2004, to
      replenish the Company's working capital in connection with the acquisition
      of
      the vessel *Wichita
      Belle* .
      Interest is at LIBOR plus 1.5%, compounded monthly and paid quarterly. Payment
      of principal is due in 20 quarterly installments of $255,000 commencing on
      June
      30, 2005 (six months after drawdown). A balloon installment of $2,050,000 is
      payable with the last quarterly installment on March 23, 2010. The credit
      facility is collateralized by a First Preferred Ship Mortgage on the vessel *Wichita
      Belle* and
      assignment of freight revenue and insurance. The credit facility requires that
      the Company maintain a monthly average of $1,500,000 on deposit with the
      bank.




**AIG
      Credit Facility**




The
      original amount of the credit facility with AIG was $45.0 million. The
      outstanding credit facility balance of $29.0 million was repaid on July 31,
      2006, from the proceeds of the new credit facility with a syndicate of
      commercial lenders led by Bank of America. Interest on loans under the AIG
      credit facility was at the 90-Day LIBOR rate plus 3.15%. In connection with
      the
      early repayment of the AIG credit facility, the Company paid $0.8 million early
      repayment fees and wrote off to interest expense unamortized debt finance costs
      of $0.3 million.




Table
          of Contents
 11


**Bank
      of America Credit Facility**




The
      credit facility with Bank of America was initially for $25.0 million. The
      outstanding credit facility balance of $18.8 million was repaid on July 31,
      2006, from the proceeds of the new credit facility with a syndicate of
      commercial lenders led by Bank of America. Interest on loans under the original
      Bank of America credit facility was at adjusted LIBOR plus 2.75%. In connection
      with the early repayment of the original Bank of America credit facility, the
      Company wrote off to interest expense unamortized debt finance costs of $0.4
      million.****




**GMAC
      Credit Facility**




The
      credit facility with GMAC was for the original amount of $22.5 million. The
      outstanding credit facility balance of $12.3 million was repaid on July 31,
      2006, from the proceeds of the new credit facility with a syndicate of
      commercial lenders led by Bank of America. Interest on loans under the GMAC
      credit facility was at "Adjusted 30-Day LIBOR," as defined in the loan
      agreement, plus 3.75%. In connection with the early repayment of the GMAC credit
      facility, the Company paid $0.3 million in early repayment fees and wrote off
      to
      interest expense unamortized debt finance costs of $0.3 million.




**Merrill
      Lynch Credit Facilit** **ies**




The
      Company had two credit facilities with Merrill Lynch for the original amounts
      of
      $15.0 million and $17.5 million. On July 31, 2006, the outstanding balances
      on
      the credit facilities, aggregating $20.3 million, were repaid from the proceeds
      of the new credit facility with a syndicate of commercial lenders led by Bank
      of
      America. Interest on the $15.0 million Merrill Lynch credit facility was at
      7.654% and on the $17.5 million credit facility was at LIBOR plus 2.5%. In
      connection with the early repayment of the Merrill Lynch credit facilities,
      the
      Company paid $1.0 million early repayment fees and wrote off to interest expense
      unamortized debt finance costs of $0.3 million.




**Citibank
      Revolving Credit Facility**




The
      Company’s $12.0 million revolving credit facility with Citibank, N.A. commenced
      on June 17, 2005 (date of first borrowing), and expired on May 31, 2006.




A
      new
      revolving credit facility with a syndicate of commercial lenders lead by Bank
      of
      America for $65.0 million was entered into on July 31, 2006.




**Note****8 — Equity Transactions**




**Preference
      Shares**




On
      February 7, 2001, the Company issued 1.0 million mandatorily redeemable
      preference shares at a fair value of $10 per share, for an aggregate fair value
      of $10.0 million at the date of issuance. Such shares provided a 7% per annum
      dividend, payable on a quarterly basis. The Company paid a total of 12 quarterly
      dividend payments "in-kind." In-kind dividend payments were added to the
      recorded value of the mandatorily redeemable preference shares with an offset
      to
      additional paid-in capital.




Table
          of Contents
 12


On
      March
      30, 2004, the Company amended the mandatorily redeemable preference shares
      to
      eliminate the mandatory redemption provisions, remove the payment of dividends,
      establish a semi-annual 15 cents-per-share dividend and permit the conversion,
      at the option of the holder, of each preference share to two old Class C common
      shares.




On
      June
      29, 2005, in connection with the Company's initial public offering, the holders
      of the Company's convertible preference shares exercised their right to convert
      their 1,000,000 issued and outstanding convertible preference shares into
      2,000,000 old Class C common shares. Conversion of the preference shares into
      old Class C common shares constituted payment in full of the preference
      shares.




**Other
      Equity Transactions**




On
      June
      29, 2005, in connection with the Company's initial public offering ,
      the
      Company adopted new corporate bye-laws which resulted in the consolidation
      and
      redesignation of shares. The Company redesignated its 1,500,000 old Class A,
      1,500,000 old Class B and 3,000,000 old Class C common shares (after giving
      effect to the conversion of the preference shares) on a 2.5-for-1 basis to
      600,000 old Class A, 600,000 old Class B and 1,200,000 old Class C common
      shares, respectively, for the purpose of changing the par value of the Company's
      common shares from $.004 per share to $.01 per share, and redesignated the
      Company's outstanding old Class A (600,000 shares), old Class B (600,000 shares)
      and old Class C common (1,200,000 shares) shares as 2,400,000 new Class B common
      shares. Concurrent with the consolidation and redesignation of common shares,
      the Company issued 2.167 new Class A common shares and 3.20 additional new
      Class
      B common shares for each new Class B share outstanding.




**New
      Class A and New Class B Common Shares**




The
      Company has two classes of common shares that are issued and outstanding -
      Class
      A and Class B. The Class A common shares and the Class B common shares have
      identical rights to dividends, surplus and assets on liquidation; however,
      the
      holders of Class A common shares are entitled to one vote for each Class A
      common share on all matters submitted to a vote of holders of common shares,
      while holders of Class B common shares are entitled to one-half of a vote for
      each Class B common share.




The
      holders of Class A common shares can convert their Class A common shares into
      Class B common shares, and the holders of Class B common shares can convert
      their Class B common shares into Class A common shares at any time. Further,
      the
      Class B common shares will automatically convert into Class A common shares
      upon
      transfer to any person other than another holder of Class B common shares,
      in
      each case as long as the conversion will not (i) cause the Company to become
      a
      controlled foreign corporation, as defined in the Internal Revenue Code, or
      (ii)
      cause the Class A common shares to cease to be regularly traded on an
      established securities market for purposes of Section 883 of the Internal
      Revenue Code.




**Warrants**




Warrants
      were issued by the Company in connection with its emergence from bankruptcy
      in
      2001. The warrant agreement includes an anti-dilution provision that adjusts
      the
      number of shares issuable upon exercise of the warrants whenever the Company
      issues additional common shares or engages in similar transactions. The Series
      A
      warrants were exercisable if the first Preferred Ship Mortgage Notes were not
      paid in full by February 8, 2005 and, when exercised, would represent
      approximately 27% of the total outstanding shares of the Company on a fully
      diluted basis. The Series B warrants were exercisable if the preference shares
      were not paid in full by February 8, 2006 and, when exercised, would represent
      approximately 6% of the total outstanding common shares of the Company on a
      fully diluted basis. The Series C warrants were exercisable only if the exercise
      conditions of the Series A and Series B warrants were satisfied and, when
      exercised, would represent approximately 7% of the total outstanding common
      shares of the Company.




Table
          of Contents
 13


The
      first
      Preferred Ship Mortgage Notes were paid on June 29, 2005 and accordingly, the
      Series A warrants became exercisable. In
      connection with the Company’s initial public offering, the holders of the
      Company's convertible preference shares exercised their right to convert the
      convertible preference shares into Class C Common shares. As the conversion
      of
      the preference shares constituted payment in full of the preference shares,
      the
      exercise condition for the Series B and Series C warrants became incapable
      of
      being met as of June 29, 2005. As a result of the anti-dilution provisions
      of
      the warrant agreement, following the conversion of all the outstanding
      preference shares into Class C common shares, the number of common shares
      issuable upon exercise of all outstanding Series A warrants increased from
      1,769,231 to 2,167,539 Class C common shares. The issuance of 7,000,000 new
      Class A common shares in connection with the initial public offering further
      increased the number of shares issuable upon exercise of all outstanding Series
      A warrants from 2,167,539 to 2,901,403 Class C common shares. The number of
      shares issuable under the Series A warrants were 2,515,368 new Class A common
      shares and 4,874,357 new Class B common shares, after giving effect to the
      common share conversion that took effect on June 29, 2005 as described above
      in
      Other Equity Tranasctions. On June 29, 2005, Series A warrants to purchase
      2,125,392 Class C common shares, or 1,842,606 new Class A and 3,576,590 new
      Class B common shares, held by certain existing shareholders were exercised.
      In
      addition, in connection with the initial public offering, the 662,952 Series
      A
      warrants to purchase 574,434 new Class A and 1,113,155 new Class B common shares
      held by these shareholders were cancelled.




At
      September 30, 2006, there were outstanding exercisable warrants to purchase
      98,311 new Class A and 190,542 new Class B common shares, held by parties not
      affiliated with existing shareholders. The warrants are exercisable for a period
      of ten years following the date on which their exercise condition was met
      (February 8, 2005), at a price of $.01 per share.




**Note****9 — 2005 Equity Incentive Plan**




The
      Company adopted an Equity Incentive Plan in 2005, which authorizes the grant
      of "non-qualified"
      shares to employees, independent directors and affiliates. The maximum number
      of
      shares that can be granted under the incentive plan is 2,000,000 shares. The
      incentive plan became effective on the date of the Company’s initial public
      offering, at which time the Company issued 100,000 restricted Class A common
      shares, vesting in equal installments over four years commencing one year after
      issuance, to its Executive Vice President and Chief Financial Officer ("CFO"),
      106,900 restricted Class A common shares to employees of Roymar and TBS Shipping
      Services, vesting immediately, and 4,500 restricted Class A common shares,
      vesting one year after issuance, to its independent directors. The weighted
      average grant date fair value per share was $10. The Company’s consolidated
      financial statements for the three and nine months ended September 30, 2006,
      include compensation costs of $62,500 and $210,000, respectively, of amortized
      compensation costs related to restricted shares granted to our CFO. The
      Company’s consolidated financial statements for the three months ended September
      30, 2005, include compensation costs of $62,500 for our CFO. The Company’s
      consolidated financial statements for the nine months ended September 30, 2005
      include compensation costs of $1.9 million for restricted shares issued to
      employees of our subsidiaries Roymar and TBS Shipping Services under the Equity
      Incentive Plan, as well as associated federal, state and local employment taxes
      and withholding taxes paid by Roymar and TBS Shipping Services and $62,500
      of
      amortized compensation costs for our CFO.




At
      September 30, 2006, there was $687,250 of
      unamortized compensation costs related to non-vested restricted shares awarded
      to our CFO, and the remaining weighted average vesting period over which cost
      is
      expected to be recognized is 2.75 years. The Company’s consolidated financial
      statements for the nine months ended September 30, 2006, include compensation
      costs of $22,500, for our independent directors. There was no amortized
      compensation cost for the three months ended September 30, 2006 related to
      restricted shares granted to the independent directors. On June 29, 2006 in
      connection with the vesting of the above mentioned share grants, 25,000 Class
      A
      common shares were issued to our CFO, and 4,500 Class A common shares were
      issued to the independent directors.




Table
          of Contents
 14


**Note****10 — Earnings Per Share**




In
      accordance with SFAS No. 128, "Earnings per Share," the following table sets
      forth the computation of basic and diluted net income per share for the three
      and nine months ended September 30, 2005 and 2006:




**Three
                  Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,****2005**
              
              **2006**
              
              **2005**
              
              **2006****Numerators:**Net
                  income
              
              $
              12,276,790
              
              $
              9,214,087
              
              $
              42,227,587
              
              $
              22,900,958Net
                  income allocated to preference shares
              
              
              -
              
              
              -
              
              
              (6,092,408
              )
              
              -Net
                  income available for common shareholders (basic and
                  diluted)
              
              $
              12,276,790
              
              $
              9,214,087
              
              $
              36,135,179
              
              $
              22,900,958**Denominators:**Basic-weighted
                  average common shares outstanding
              
              
              27,983,829
              
              
              28,013,310
              
              
              19,809,880
              
              
              27,993,968Restricted
                  stock issued to employees
              
              
              104,500
              
              
              75,000
              
              
              35,982
              
              
              94,342Dilutive
                  effect of Series A, B & C warrants
              
              
              -
              
              
              -
              
              
              3,192,075
              
              
              -Diluted-weighted
                  average common shares and potential common shares
                  outstanding
              
              
              28,088,329
              
              
              28,088,310
              
              
              23,037,937
              
              
              28,088,310**Income
                  per common share:**Basic
              
              $
              0.44
              
              $
              0.33
              
              $
              1.82
              
              $
              0.82Diluted
              
              $
              0.44
              
              $
              0.33
              
              $
              1.57
              
              $
              0.82




The
      calculation of earnings per share for the three and nine months ended September
      30, 2005, includes 104,500 restricted Class A common shares issued to our CFO
      and to our independent directors on June 29, 2005. The calculation of earnings
      per share for the three and nine months ended September 30, 2005, also includes
      an allocation to preference shares and warrants issued by the Company as
      described below. The calculation of earnings per share for the three and nine
      months ended September 30, 2006, includes the remaining 75,000 restricted Class
      A common shares issued to our CFO on June 29, 2005.




As
      described in Note 8 -- Equity Transactions-Preference Shares, each convertible
      preference share was convertible into two old Class C common shares. The basic
      earnings per share calculation for the three and six months ended September
      30,
      2005, reflects the rights of the respective classes of shares to receive
      distributions of net income (net losses are not allocated to preference shares)
      using the "two-class method" described in SFAS 128, *"Earnings
      Per Share".* The
      Company has allocated the pro-rata share of net income to the convertible
      preference shares on a percentage of total weighted average common shares
      outstanding plus the common-equivalent number of weighted average preferred
      shares outstanding. For the nine months ended September 30, 2005, the
      convertible preference shares would have added 3,339,955 common shares on a
      weighted average basis, respectively, to diluted shares outstanding. These
      shares were not included in the diluted earnings per share calculation because
      the effect would have been anti-dilutive.




Table
          of Contents
 15


As
      described in Note 8 -- Equity Transactions - Warrants, the Series A warrants
      were exercisable for a total of 7,389,725 common shares as adjusted for the
      redesignated and consolidated shares and additional shares that are exercisable
      pursuant to the warrant agreement. The Series A warrant exercise condition
      was
      satisfied on February 8, 2005, and the shares subject to these warrants have
      been treated as outstanding for purposes of basic earnings per share for the
      period beginning February 8, 2005 because they are issuable for nominal
      consideration upon exercise of the warrants. The dilutive effect of Series
      A, B
      and C warrants is reduced to the extent that common shares issuable on the
      exercise of Series A warrants are already included in basic weighted average
      common shares outstanding.




At
      September 30, 2006, there were outstanding exercisable warrants to purchase
      98,311 new Class A and 190,542 new Class B common shares, held by parties not
      affiliated with existing shareholders and as discussed above, these warrants
      have been treated as outstanding for purposes of basic earnings per share for
      the three and nine months ended September 30, 2005 and 2006.




**Note
      11 — Commitments and Contingencies**




**Litigation**




In
      connection with the acquisition of the vessel *Sea
      Pantheon* (renamed *Tamoyo
      Maiden),* the
      Company sought damages for the cost of repairs and loss of hire related to
      ballast tank contamination discovered after delivery of the vessel. As specified
      in the purchase agreement, the dispute was made in London before an arbitration
      tribunal selected by the Company and the seller. The Company, through its
      subsidiary, had an associated vessel that is owned by a company related to
      the
      seller arrested to secure its claim. That vessel was released upon the seller's
      providing a bank guarantee in the amount of $2.1 million. The seller alleged
      damages due to the arrest of the associated vessel and the Company, as required
      under English law, deposited in escrow $750,000 on June 6, 2005, as
      counter-security to provide for estimated arbitration/litigation costs. On
      August 17, 2005, we obtained a reduction of $217,500 in the amount of the
      counter-security to $532,500. Arbitration proceedings took place in April 2006,
      as disclosed in our quarterly report for the quarter ended June 30, 2006, filed
      with the SEC on August 10, 2006. On September 4, 2006, the Arbitrators issued
      a
      decision in the Company’s favor, finding that the seller was in breach of the
      contract and is responsible for the cost of repair and cleaning. We anticipate
      receiving an award of between $0.9 million and $1.0 million. In October 2006,
      our counter security of $532,500 was returned with interest and accordingly,
      the
      amount has been included in other receivables in our consolidated balance
      sheet.





The
      Company is periodically a defendant in cases involving personal injury and
      other
      matters that arise in the normal course of business. While any pending or
      threatened litigation has an element of uncertainty, the Company believes that
      the outcome of these lawsuits or claims, individually or combined, will not
      materially adversely affect the consolidated financial position, results of
      operations or cash flows of the Company.




**Note
      12 — Business Segment**




The
      Company is managed as a single business unit that provides worldwide ocean
      transportation of dry cargo to its customers through the use of owned and
      chartered vessels. The vessels are operated as one fleet and, when making
      resource allocation decisions, our chief operating decision maker evaluates
      voyage profitability data, which considers vessel type and route economics,
      but
      gives no weight to the financial impact of the resource allocation decision
      on
      an individual vessel basis. The Company's objective in making resource
      allocation decisions is to maximize its consolidated financial results, not
      the
      individual results of the respective vessels or routes.




The Company
      transports cargo throughout the world, including the United States. The amount
      of voyage revenue generated in countries other than the U.S. is $36.1 million
      and $42.1 million and $118.6 million and $123.4 million for the three and nine
      months ended September 30, 2005 and 2006, respectively.




Table
          of Contents
 16


Revenue
      was generated in the following principal foreign geographic areas:


**Three
                  Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,****Country**
              
              **2005**
              
              **2006**
              
              **2005**
              
              **2006**Brazil
              
              $
              11,824,859
              
              $
              9,949,259
              
              $
              39,038,774
              
              $
              36,925,242Japan
              
              
              6,158,359
              
              
              9,369,314
              
              
              20,506,609
              
              
              24,108,834Chile
              
              
              5,951,122
              
              
              3,593,160
              
              
              17,156,671
              
              
              12,157,796Peru
              
              
              2,565,721
              
              
              3,716,649
              
              
              11,548,597
              
              
              11,300,851Venezuela
              
              
              2,712,188
              
              
              1,837,872
              
              
              6,900,862
              
              
              6,914,240Korea
              
              
              1,936,051
              
              
              1,676,668
              
              
              5,233,551
              
              
              5,157,140China
              
              
              1,835,341
              
              
              6,332,335
              
              
              8,070,857
              
              
              12,616,701United
                  Arab Emirates
              
              
              522,935
              
              
              3,340,415
              
              
              655,879
              
              
              5,142,747Others
              
              
              2,633,551
              
              
              2,244,287
              
              
              9,443,115
              
              
              9,075,135**Total**
              
              **$**
              **36,140,127**
              
              **$**
              **42,059,959**
              
              **$**
              **118,554,915**
              
              **$**
              **123,398,686**




Revenue
      is attributed to these countries based on the location where the cargo is
      loaded. The difference between total voyage revenues and total revenue by
      country is revenue from the United States. Time charter revenue by country
      cannot be allocated because the Company does not control the itinerary of the
      vessel.




One
      customer accounted for 20.5% and 7.1%, of charter hire receivables at September
      30, 2006 and December 31, 2005, respectively. One customer accounted for 17.3%,
      12.5%, 16.0% and 15.3% of voyage and time charter revenue for the three and
      nine
      months ended September 30, 2005 and 2006, respectively.




**Note
      13 — Subsequent Events**




On
      October 27, 2006, the Company entered into an agreement to acquire the 41,808
      dwt, handymax bulk carrier *Aliki* for
      $ 16. 1 million.
      The vessel is expected to be delivered in late November or early December
      2006.





The
      Company entered into an interest rate swap on November 2, 2006, effectively
      converting $56.2 million of its borrowings under the Bank of America Credit
      Facility from a floating to a fixed-rate. Exclusive of the applicable margin,
      the Company will pay interest based on a fixed LIBOR rate of 5.09% for the
      next
      four-years.






Table
          of Contents
 17


**Item
        2.    Management's
        Discussion and Analysis of Financial Condition and Results of
        Operations**
  This
        Quarterly Report on Form 10-Q contains forward-looking statements within
        the
        meaning of the Private Securities Litigation Reform Act of 1995. These
        statements are only our management's current expectations. They are based
        on our
        management's beliefs and assumptions and on information currently available
        to
        our management. Forward-looking statements include, among other things, the
        information concerning our possible or assumed future results of operations,
        business strategies, financing plans, competitive position, potential growth
        opportunities and the effects of future regulation and competition.
        Forward-looking statements include all statements that are not historical
        facts
        and can be identified by the use of forward-looking terminology such as the
        words "anticipates," "believes," "estimates," "expects," "future," "intends,"
        "plans" and similar terms.




Forward-looking
      statements involve risks, uncertainties and assumptions. Although the Company
      does not make forward-looking statements unless it believes it has a reasonable
      basis for doing so, it cannot guarantee their accuracy. Actual results may
      differ materially from those expressed in these forward-looking statements
      due
      to a number of uncertainties and risks, including the risks disclosed in our
      December 31, 2005 Form 10-K filed March 16, 2006, and other unforeseen risks.
      You should not rely on any forward-looking statements.




**Recent
      Developments**




On
      October 27, 2006, the Company entered into an agreement to acquire the 41,808
      dwt, handymax bulk carrier *Aliki* (to be
      renamed Alabama *Belle)*  ** for
      $ 16. 1 million.
      The vessel is expected to be delivered in late November or early December
      2006.




On
      August
      30, 2006, we entered into an agreement, through our wholly owned subsidiary
      Fairfax Shipping Corp., to acquire the *Clipper
      Flamingo* (to be
      renamed *Seminole
      Princess)* from VOC
      Flamingo Shipping L.P., Nassau, Bahamas, for $23.1 million.  We also
      entered into an agreement, through our wholly owned subsidiary Beekman Shipping
      Corp., to acquire the *Clipper
      Frontier* (to be
      renamed *Laguna
      Belle)* from VOC
      Frontier Shipping L.P., Nassau, Bahamas, for $22.0 million.  Both
      vessels are expected to be delivered in November 2006.




On
      August
      8, 2006, through a wholly owned subsidiary, we agreed to sell the *Dakota
      Belle* for
      $3.225 million. The vessel was delivered September 27, 2006.




On
      July
      31, 2006, we entered, through certain subsidiaries, into a credit agreement
      with
      a syndicate of commercial lenders led by Bank of America for a new $140.0
      million credit facility (the "Credit Facility"). The Credit Facility is
      collateralized by Ship Mortgages on 24 vessels, as well as an assignment of
      all
      charter hires, earnings related to the collateral and insurance proceeds. The
      Credit Facility is composed of a $65.0 million revolving credit facility and
      a
      $75.0 million term loan facility. The Credit Facility provides a four-year
      self-amortizing term loan with quarterly principal payments of approximately
      $4.7 million beginning September 2006. The non-amortizing revolving loan is
      due
      in July 2010. Interest on the Credit Facility initially is at LIBOR plus a
      margin of 2.25%. The interest rate margin can vary quarterly in .50% increments,
      between four pricing levels from 2.75% to 1.25% based on the consolidated
      leverage ratio. The interest rate margin becomes adjustable after December
      31,
      2006 and on or before March 31, 2007




**General**




The
      following is a discussion of our financial condition at September 30, 2006 and December 31, 2005 and our results of operations comparing
      the three and nine months ended September 30, 2006 with the three and nine
      months ended September 30, 2005. You should read this section in conjunction
      with our consolidated financial statements including the related notes therein,
      which is included elsewhere in this Quarterly Report.




Table
          of Contents
 18


**Overview**
  We
        are a
        fully
        integrated ocean transportation services company that offers worldwide shipping
        solutions through liner, parcel and bulk services and vessel chartering.
        We
        offer our services globally in more than ten countries to over 300 customers
        through a network of affiliated service companies.
  Our
        financial results are largely driven by the following factors:
  ·
              macroeconomic
                  conditions in the geographic regions where we
                  operate;


·
            general
                economic conditions in the industries in which our customers
                operate;




·
            changes
                in our freight and sub-time charter rates — rates we charge for vessels we
                charter out — and, in periods when our voyage and vessel expenses
                increase, our ability to raise our rates to pass such cost increases
                through to our customers;




·
            the
                extent to which we are able to efficiently utilize our controlled
                fleet
                and optimize its capacity; and




·
            the
                extent to which we can control our fixed and variable costs, including
                those for port charges, fuel, commission expense and stevedore and
                other
                cargo-related expenses.




Our
      historical consolidated financial statements for the period prior to June 29,
      2005, when we completed our initial public offering, show our results of
      operations as a private company.




**Components
      of revenue and expense**




We
      report
      our revenue as voyage revenue, reflecting the operations of our vessels that
      are
      not chartered out, and time charter revenue, reflecting the operations of our
      vessels that have been chartered out to third parties. Voyage
      revenue and expenses for each reporting period include estimates for voyages
      in
      progress at the end of the period. Estimated profits from voyages in progress
      are recognized on a percentage of completion basis by prorating the estimated
      final voyage revenue and expenses using the ratio of voyage days completed
      through period end to total voyage days. When a loss is forecast for a voyage,
      the full amount of the anticipated loss is recognized in the period in which
      that determination is made. Revenue from time charters in progress is calculated
      using the daily charter hire rate, net of daily expenses multiplied by the
      number of voyage days on-hire through period end.




***Voyage
      revenue*** consists
      of freight charges paid to our subsidiaries for the transport of customers'
      cargo. The key factors driving voyage revenue are the number of vessels in
      the
      fleet, freight voyage days, revenue tons and the freight rates.




***Time
      charter revenue*** consists
      of a negotiated daily hire rate for the duration of the time charter. The key
      factors driving time charter revenue are the number of days that vessels are
      chartered out and the daily charter hire rates.




***Voyage
      expenses*** consist
      primarily of fuel, port costs, stevedoring, commissions and lashing materials,
      which are paid by our subsidiaries.




***Vessel
      expenses*** ** are
      vessel operating expenses — crewing, stores, lube oil, repairs and maintenance
      including drydock reserves, registration taxes and fees, insurance and
      communication expenses — for vessels we control, charter hire fees we pay to
      owners for use of their vessels and space charters (relets). The costs are
      paid
      by our subsidiaries.




***Depreciation
      and amortization*** ** expense
      is computed on the basis of 30-year useful lives for our vessels.




Table
          of Contents
 19


***Management
      fees*******are paid to Roymar for the technical
      management of controlled vessels and to TBS Shipping Services for the
      operational management of vessels. From June 2005, when we purchased all the
      stock of TBS Shipping Services and Roymar, management fees have been eliminated
      in consolidation. We also paid commissions on freight and time charter hire
      to
      TBS Shipping Services that are eliminated in consolidation from the date we
      acquired this company. Commissions on freight and port agency fees are paid
      to
      TBS Commercial Group Ltd, a company that is owned by our principal shareholders.




These
      management fees and commissions were fixed under agreements that originally
      were
      negotiated during our Chapter 11 proceeding with representatives of the holders
      of our then outstanding First Preferred Ship Mortgage Notes and were approved
      by
      our Board of Directors. Renewal of the current management agreements with TBS
      Commercial Group Ltd. and approval of any new management agreements or
      amendments to the current management agreements with TBS Commercial Group Ltd.
      are subject to approval by the Compensation Committee of our Board of
      Directors.




**Lack
      of historical operating data for vessels before their
      acquisition**




Consistent
      with shipping industry practices, there is no historical financial due diligence
      process when we acquire vessels other than the inspection of the physical
      condition of the vessels and examinations of classification society records.
      Accordingly, we do not obtain the historical operating data for the vessels
      from
      the sellers because that information is not material to our decision to make
      acquisitions, nor do we believe it would be helpful to potential investors
      in
      our common shares in assessing our business or profitability.




Most
      vessels are sold under a standardized agreement, which, among other things,
      provides the buyer with the right to inspect the vessel and the vessel's
      classification society records. The standard agreement does not give the buyer
      the right to inspect, or receive copies of, the historical operating data of
      the
      vessel and does not provide for financial information or historical results
      for
      the vessels to be made available to the buyer. Prior to the delivery of a
      purchased vessel, the seller typically removes from the vessel all records,
      including past financial records and accounts related to the vessel. In
      addition, the technical management agreement between the seller's technical
      manager and the seller is automatically terminated and the vessel's trading
      certificates are revoked by its flag state following a change in
      ownership.




Consistent
      with shipping industry practice, we treat the acquisition of a vessel, whether
      acquired with or without charter, as the acquisition of an asset rather than
      a
      business. Due to the differences between the prior owners of these vessels
      and
      the Company with respect to the routes we operate, the shippers and consignees
      we serve, the cargoes we carry, the freight rates and charter hire rates we
      charge and the costs we incur in operating our vessels, we believe that our
      operating results will be significantly different from the operating results
      of
      the vessels while owned by the prior owners.




Financial
      Accounting Standards Board issued Emerging Issues Task Force (EITF) 98-3, which
      states that "for a transferred set of activities and assets to be a business,
      it
      must contain all of the inputs and processes necessary for it to continue to
      conduct normal operations after the transferred set is separated from the
      transferor, which includes the ability to sustain a revenue stream
      by
      providing its output to customers." The purchase of a vessel alone cannot
      operate or generate revenue or constitute a business operation without the
      significant inputs and processes that we provide, as described
      below:




•
            We
                provide our own captains, senior officers and crew to the
                vessels.•
            The
                vessels are managed by our subsidiary Roymar. All of the functions
                of
                vessel management, from technical ship management to crewing, vessel
                maintenance and drydocking, are conducted by Roymar, in a manner
                different
                from the prior manager, according to our exacting
                standards.




Table
          of Contents
 20


•
            The
                necessary commercial activities — maintaining customer relationships,
                providing local teams of commercial agents and port captains, offering
                transportation management skills and logistics solutions — are provided by
                our subsidiary TBS Shipping Services and our affiliate TBS Commercial
                Group in a manner different from the former owners.•
            The
                vessels will operate under our trade name and carry our distinctive
                Native
                American Indian tribe naming
                convention.




The
          revenue-producing activity of the vessels we purchase will be generated
          from
          carrying cargoes for our customers on the routes we serve. The vessels
          we
          purchased are operated by different parties than their former owners, serve
          different customers, carry different cargoes, charge different rates, cover
          different routes and, in all respects engage in a different business with
          different revenues, costs and operating margins.




In
      short,
      all of the most important elements of operating the assets — in fact, all of the
      elements of the business of ocean transportation other than the vessels
      themselves — are not being purchased with the vessels but will depend on our
      skill and expertise.




**Results
      of Operations**




***Comparison
      of the three months ended September 30, 2005 and 2006***




**Three
                  Months Ended**
              
              **Three
                  Months Ended****September
                  30, 2005**
              
              **September
                  30, 2006**
              
              **Increase
                  (Decrease)****In
                  Thousands**
              
              **As
                  a % of Total Revenue**
              
              **In
                  Thousands**
              
              **As
                  a % of Total Revenue**
              
              **In
                  Thousands**
              
              **Percentage**Voyage
                  revenue
              
              $
              39,243
              
              
              66.5
              
              $
              47,880
              
              
              73.2
              
              $
              8,637
              
              
              22.0Time
                  charter revenue
              
              
              19,263
              
              
              32.6
              
              
              16,915
              
              
              25.9
              
              
              (2,348
              )
              
              (12.2
              )Other
                  revenue
              
              
              513
              
              
              0.9
              
              
              607
              
              
              0.9
              
              
              94
              
              
              18.3Total
                  revenue
              
              
              59,019
              
              
              100.0
              
              
              65,402
              
              
              100.0
              
              
              6,383
              
              
              10.8Voyage
                  expense
              
              
              17,540
              
              
              29.7
              
              
              21,857
              
              
              33.4
              
              
              4,317
              
              
              24.6Vessel
                  expense
              
              
              16,063
              
              
              27.2
              
              
              16,324
              
              
              25.0
              
              
              261
              
              
              1.6Depreciation
                  and amortization
              
              
              5,486
              
              
              9.3
              
              
              7,211
              
              
              11.0
              
              
              1,725
              
              
              31.4Management
                  fees
              
              
              59
              
              
              0.1
              
              
              -
              
              
              -
              
              
              (59
              )
              
              -General
                  and administrative
              
              
              5,016
              
              
              8.5
              
              
              6,883
              
              
              10.5
              
              
              1,867
              
              
              37.2Gain
                  from sale of vessel
              
              
              -
              
              
              -
              
              
              (2,180
              )
              
              (3.3
              )
              
              (2,180
              )
              
              -Total
                  operating expenses
              
              
              44,164
              
              
              74.8
              
              
              50,095
              
              
              76.6
              
              
              5,931
              
              
              13.4Income
                  from operations
              
              
              14,855
              
              
              25.2
              
              
              15,307
              
              
              23.4
              
              
              452
              
              
              3.0Other
                  (expenses) and incomeInterest
                  expense
              
              
              (2,817
              )
              
              (4.8
              )
              
              (6,291
              )
              
              (9.6
              )
              
              (3,474
              )
              
              123.3Other
                  income
              
              
              239
              
              
              0.4
              
              
              198
              
              
              0.3
              
              
              (41
              )
              
              (17.2
              )Net
                  income
              
              $
              12,277
              
              
              20.8
              
              
              9,214
              
              
              14.1
              
              $
              (3,063
              )
              
              (24.9
              )






Table
          of Contents
 21


**Voyage
        revenue**
 
 Voyage
        revenue for the three months ended September 30, 2006 as
        compared to the same period in 2005 increased 22.0% due to an increase in
        revenue tons offset by a decrease in freight rates. As mentioned in
        c omponents
        of revenue and expense above,
        the key factors driving voyage revenue are the number of vessels in the fleet,
        freight voyage days and freight rates.
  Revenue
      tons carried for the three months ended September 30, 2006 as
      compared to the same period in 2005,
      increased 382,464 tons or
      50.9% to 1,133,148 tons for the three months ended September 30, 2006 from
      750,684 tons for the same period in 2005. The increase in r evenue
      tons carried is
      due to an
      increase in aggregate bulk cargo carried and an increase
      in the number of vessels in our fleet ,
      which
      resulted in a higher
      number of voyages.




Freight
      rates for the three months ended September 30, 2006 as
      compared to the same period in 2005,
      decreased $10.03
      per ton or 19.2% to $42.25 per ton in the third quarter of 2006 from $52.28
      per
      ton for the same period in 2005. Freight
      rates, not under contracts, are set by the market and depend on the relationship
      between the demand for ocean freight transportation and the availability of
      appropriate vessels. During
      the three months ended September 30, 2005 demand for dry bulk ocean shipping
      remained high due largely to the expansion of economies in East Asia, especially
      China. Beginning in the second half of 2005, freight rates began to decline
      from
      the levels reached earlier in the year as demand, except for aggregates,
      declined. Freight rates increased in mid-2006 as demand, specifically from
      China, increased.




For
      the
      three months ended September 30, 2006, and 2005, we had contracts of
      affreightment, expiring through the end of 2006 and early 2007, under which
      we
      carried approximately 659,000 and 71,000 revenue tons and generated $18.4
      million and $3.3 million of voyage revenue, respectively.




Included
      in voyage revenue is revenue from high-volume, low-freighted aggregate bulk
      cargo. Excluding this type of bulk cargo, of which we carried 354,180 tons
      and
      61,823 tons during the third quarter of 2006 and 2005, respectively, average
      freight rates would have been $57.18 per ton and $56.21 per ton for the three
      months ended September 30, 2006 and September 30, 2005, respectively.




The
      increase in weighted average number
      of
      vessels in the fleet, freight
      voyage days and days on hire ,
      excluding vessels time chartered out, and
      the
      (decrease)/increase in freight rates for
      the
      three months ended September 30, 2005 and 2006 are
      as
      follows:




**Three
                  Months Ended September 30,****2005**
              
              **2006**
              
              **Increase
                  (Decrease)**Number
                  of vessels (1)
              
              
              18
              
              
              22
              
              
              4
              
              
              22.2
              %Freight
                  voyage days (2)
              
              
              1,627
              
              
              1,984
              
              
              357
              
              
              21.9
              %Days
                  on hire (3)
              
              
              1,686
              
              
              2,083
              
              
              397
              
              
              23.5
              %Freight
                  Rates (4)For
                  all cargoes
              
              $
              52.28
              
              $
              42.25
              
              $
              (10.03
              )
              
              (19.2
              )%Excluding
                  aggregates
              
              $
              56.21
              
              $
              57.18
              
              $
              0.97
              
              
              1.7
              %


___




(1)
            Weighted
                average number of vessels in the fleet, not including off-hire days
                and
                not including vessels time chartered out.(2)
            Number
                of days that our vessels were earning revenue, not including vessels
                time
                chartered out.(3)
            Not
                including vessels time chartered out.(4)
            Weighted
                average freight rates measured in dollars per
                ton.





Table
          of Contents
 22


The
      following table shows revenues attributed to our principal
      cargoes:


**Three
                  Months Ended**
                **September
                  30, 2005**
              
              **Three
                  Months Ended**
                **September
                  30, 2006**
              
              **Increase
                  (Decrease)****Description**
              
              **In
                  Thousands**
              
              **As
                  a % of Total Voyage Revenue**
              
              **In
                  Thousands**
              
              **As
                  a % of Total Voyage Revenue**
              
              **In
                  Thousands**
              
              **Percentage**Steel
                  products
              
              $
              14,756
              
              
              37.6
              
              $
              16,121
              
              
              33.7
              
              $
              1,365
              
              
              9.3Metal
                  concentrates
              
              
              4,941
              
              
              12.6
              
              
              6,757
              
              
              14.1
              
              
              1,816
              
              
              36.8Fertilizers
              
              
              3,634
              
              
              9.3
              
              
              1,994
              
              
              4.2
              
              
              (1,640
              )
              
              (45.1
              )Other
                  bulk cargo
              
              
              2,781
              
              
              7.1
              
              
              5,591
              
              
              11.7
              
              
              2,810
              
              
              101.0Project
                  cargo
              
              
              339
              
              
              0.9
              
              
              3,755
              
              
              7.8
              
              
              3,416
              
              
              1,007.7General
                  cargo
              
              
              3,294
              
              
              8.4
              
              
              2,580
              
              
              5.4
              
              
              (714
              )
              
              (21.7
              )Rolling
                  stock
              
              
              3,896
              
              
              9.9
              
              
              2,889
              
              
              6.0
              
              
              (1,007
              )
              
              (25.8
              )Agricultural
                  products
              
              
              3,703
              
              
              9.4
              
              
              5,686
              
              
              11.9
              
              
              1,983
              
              
              53.6Automotive
                  products
              
              
              594
              
              
              1.5
              
              
              999
              
              
              2.1
              
              
              405
              
              
              68.2Other
              
              
              1,305
              
              
              3.3
              
              
              1,508
              
              
              3.1
              
              
              203
              
              
              15.6Total
                  voyage revenue
              
              $
              39,243
              
              
              100.0
              
              $
              47,880
              
              
              100.0
              
              $
              8,637
              
              
              22.0




**Time
      charter revenue**





Time
      charter revenue decreased 12.2% for the three months ended September 30, 2006
      as
      compared to the same period in 2005. As mentioned in components of revenue
      and expense above,
      the key factors driving time charter revenue are the number of days that vessels
      are chartered out and the daily charter hire rates.




The
      decrease in time charter revenue was due to our chartering out fewer vessels
      for
      the three months ended September 30, 2006 compared to the same period in 2005.
      During the three months ended September 30, 2006, time chartered days decreased
      121 days compared to the same period in 2005, because of changing customer
      demands and less time chartering opportunities on some voyages that did not
      have
      backhaul cargoes.




The
      decrease in time charter revenue was also due to a decrease in the average
      charter hire rate, which decreased $417 per day, or 2.7%, to $15,129 for the
      three months ended September 30, 2006 from $15,546 for the comparable period
      in
      2005. Charter hire rates are set, to a significant degree, by the market and
      depend on the relationship between the demand for ocean freight transportation
      and the availability of appropriate vessels. The decrease in average time
      charter rates for the three months ended September 30, 2006 compared to the
      same
      period in 2005 is reflective of higher than usual rates that we received in
      2005. Charter hire rates have improved during the three months ended September
      30, 2006 as the overall worldwide shipping markets have improved.




For
      the
      three months ended September 30, 2006 and 2005, we had five and seven vessels
      chartered-out under long-term charters with average daily rates of $16,083
      and
      $17,411, respectively, which made up $6.6 million and $11.0 million of time
      charter revenue. These long-term time charters expire through August 2007.




Table
          of Contents
 23


The
      decrease in number of vessels time chartered out, time charter days and daily
      charter rates for the three months ended September 30, 2005 and 2006 are as
      follows:




**Three
                  Months Ended September 30,****2005**
              
              **2006**
              
              **Increase
                  (Decrease)**Number
                  of vessels (1)
              
              
              14
              
              
              12
              
              
              (2
              )
              
              (14.3
              )%Time
                  Charter days (2)
              
              
              1,239
              
              
              1,118
              
              
              (121
              )
              
              (9.8
              )%Daily
                  charter hire rates (3)
              
              $
              15,546
              
              $
              15,129
              
              $
              (417
              )
              
              (2.7
              )%


___________




(1)
            Weighted
                average number of vessels chartered out.(2)
            Number
                of days vessels earned charter hire.(3)
            Weighted
                average charter hire rates.




**Voyage
      expense**





Voyage
      expense consists of costs attributable to specific voyages. The number and
      composition of total voyage days is a significant determinant of bunker fuel
      costs, voyage expense and commissions. During the three months ended September
      30, 2006 as compared to the same period in 2005 total voyage days increased
      as
      we increased our fleet. The following table shows the change in the number
      and
      composition of total voyage days for the three months ended September 30, 2005
      and 2006:




**Three
                  Months Ended September 30,****2005**
              
              **2006**
              
              **Increase
                  (Decrease)**Freight
                  voyage days
              
              
              1,627
              
              
              1,984
              
              
              357
              
              
              21.9
              %Time
                  charter days
              
              
              1,239
              
              
              1,118
              
              
              (121
              )
              
              (9.8
              )%Total
                  voyage days
              
              
              2,866
              
              
              3,102
              
              
              236
              
              
              8.2
              %




The
      principal components of voyage expense were as follows:


**Three
                  Months Ended**
              
              **Three
                  Months Ended****September
                  30, 2005**
              
              **September
                  30, 2006**
              
              **Increase
                  (Decrease)****In
                  Thousands**
              
              **As
                  a % of Voyage Expense**
              
              **As
                  a % of Revenue**
              
              **In
                  Thousands**
              
              **As
                  a % of Voyage Expense**
              
              **As
                  a % of Revenue**
              
              **In
                  Thousands**
              
              **Percentage**
              
              **As
                  a % of Revenue**Fuel
                  expense
              
              $
              6,792
              
              
              38.6
              
              
              11.4
              
              $
              10,264
              
              
              47.0
              
              
              15.6
              
              $
              3,472
              
              
              51.1
              
              
              4.2Commission
                  expense
              
              
              2,186
              
              
              12.5
              
              
              3.7
              
              
              2,852
              
              
              13.0
              
              
              4.4
              
              
              666
              
              
              30.5
              
              
              0.7Port
                  call expense
              
              
              3,693
              
              
              21.1
              
              
              6.3
              
              
              3,861
              
              
              17.7
              
              
              5.9
              
              
              168
              
              
              4.5
              
              
              (0.4
              )Stevedore
                  and othercargo-related
                  expense
              
              
              2,996
              
              
              17.1
              
              
              5.1
              
              
              2,934
              
              
              13.4
              
              
              4.5
              
              
              (62
              )
              
              (2.1
              )
              
              (0.6
              )Miscellaneous
                    voyage expense
              
              
              1,873
              
              
              10.7
              
              
              3.2
              
              
              1,946
              
              
              8.9
              
              
              3.0
              
              
              73
              
              
              3.9
              
              
              (0.2
              )Voyage
                  expense
              
              $
              17,540
              
              
              100.0
              
              
              29.7
              
              $
              21,857
              
              
              100.0
              
              
              33.4
              
              $
              4,317
              
              
              24.6
              
              
              3.7




Table
          of Contents
 24


Voyage
      expense increased 24.6% for the three months ended September 30, 2006 as
      compared to the same period in 2005. The increase was principally due to an
      increase in fuel expense and commission expense.




The
      3.7%
      increase in voyage expense as a percentage of total revenue to 33.4% for
      the three months ended September 30, 2006 from 29.7% of total revenue for the
      comparable period in 2005, was primarily due to an increase in fuel expense,
      which could not be fully recovered from our customers, and to an increase in
      commission expense.




The
      51.1%
      increase in fuel expense was due to an increase in the average price per metric
      ton ( "MT")
      and
      an increase in consumption. For the three months ended September 30, 2006,
      the
      average price per MT increased to $419 per MT from $325 per MT for the same
      period in 2005. Consumption also increased for the three months ended September
      30, 2006 to 24,523 MT from 20,927 MT for the same period in 2005.




The
      30.5%
      increase in commission expense for the three months ended September 30, 2006
      as
      compared to the same period in 2005 was due primarily to higher cargo volumes
      and voyage revenue.




The
      4.5%
      increase in port call expense was primarily due to an increase in the number
      of
      port days, which increased to 972 port days for the three months ended September
      30, 2006 from 712 port days for the same period in 2005. The increase in port
      call expense is also due to the increase in the number of port calls, which
      increased to 228 port calls for the three months ended September 30, 2006 from
      209 port calls for the same period in 2005.




Stevedore
      and other cargo-related expense for the three months ended September 30, 2006
      was relatively flat as compared to the same period in 2005. Stevedore and other
      cargo-related expense fluctuates based on the shipping terms that cargo is
      booked under and cargo volumes. For analysis purposes, we group cargoes into
      three categories: (1) cargo booked under “free-in free-out" terms which are
      shipments that the customer pays all or part of the costs of loading and
      unloading, (2) cargo booked under "full liner" terms which are shipments where
      we bear the costs of loading and unloading and (3) a combination of free-in
      free-out and full liner terms. For the three months ended September 30, 2006,
      revenues from cargo booked under "free-in free-out" terms increased $2.4 million
      to $29.2 million for three months ended September 30, 2006 from $26.8 million
      for the same period in 2005. The increase in cargo booked under "free-in
      free-out" terms, resulted in a decrease to costs that were offset by an increase
      in cargo volumes. Cargo volumes increased to 1,133,148 revenue tons for the
      three months ended September 30, 2006, from 750,684 revenue tons for the same
      period in 2005.





The
      increase in miscellaneous voyage expense for the three months ended September
      30, 2006 compared to the same period in 2005, increase resulted from an increase
      in the number of freight voyages, which increased to 45 voyages for the three
      months ended September 30, 2006 from 41 voyages for the same period in
      2005.





**Vessel
      expense**





Vessel
      expense consists of costs we incur to own and maintain our fleet that are not
      allocated to a specific voyage, such as charter hire rates for vessels we
      charter-in, drydocking, maintenance, insurance and crewing expenses for vessels
      we control. The following table sets forth the basic components of vessel
      expense:




Table
          of Contents
 25


**Three
                  Months Ended**
              
              **Three
                  Months Ended****September
                  30, 2005**
              
              **September
                  30, 2006**
              
              **Increase
                  (Decrease)****In
                  Thousands**
              
              **As
                  a % of Vessel Expense**
              
              **In
                  Thousands**
              
              **As
                  a % of Vessel Expense**
              
              **In
                  Thousands**
              
              **Percentage**Chartered-in
                  vessel expense
              
              $
              4,972
              
              
              31.0
              
              $
              3,518
              
              
              21.6
              
              $
              (1,454
              )
              
              (29.2
              )Owned
                  vessel expense
              
              
              10,839
              
              
              67.4
              
              
              12,786
              
              
              78.3
              
              
              1,947
              
              
              18.0Space
                  charter expense
              
              
              252
              
              
              1.6
              
              
              20
              
              
              0.1
              
              
              (232
              )
              
              (92.1
              )Vessel
                  expense
              
              $
              16,063
              
              
              100.0
              
              $
              16,324
              
              
              100.0
              
              $
              261
              
              
              1.6




The
      1.6%
      increase in vessel expense for the three months ended September 30, 2006 as
      compared to the same period in 2005 was primarily due to a change in the
      composition of our fleet. For the three months ended September 30, 2006, our
      fleet averaged 32 owned vessels compared to an average of 28 owned vessels
      during the same period in 2005. The increase in the number of owned vessels
      decreased our demand for chartered-in vessels during the third quarter of 2006.





The
      29.2%
      decrease in chartered-in vessel expense for the three months ended September
      30,
      2006 as compared to the same period in 2005 resulted from our chartering-in
      vessels for 76 fewer vessel days for the three months ended September 30, 2006.
      We chartered-in vessels for 259 days for the second quarter of 2006 as compared
      to 335 days for the same period in 2005. A decrease in the average charter-in
      rate per day also added to the decrease in chartered-in vessel expense. Average
      charter-in rates decreased $1,256 per day, or 8.5%, to $13,585 per day for
      the
      three months ended September 30, 2006 from $14,841 per day for the same period
      in 2005.





The
      18.0%
      increase in owned vessel expense for the three months ended September 30, 2006
      as compared to the same period in 2005 was due, as mentioned above, to a change
      in the composition of our fleet. The increase in average owned vessels
      translated to a 13.6% or 351 day increase in vessel days to 2,941 days for
      the
      three months ended September 30, 2006 from 2,590 days for the same period in
      2005. In addition, operating expense day rates increased $296 to $4,396 per
      day
      for the three months ended September 30, 2006, from $4,100 per day for the
      three
      months ended September 30, 2005.





Space
      charter expense is the cost paid to place cargo that we are committed to ship
      on
      vessels other than those that we control. The 92.1% decrease in space charter
      expense for the three months ended September 30, 2006 as compared to the same
      period in 2005 was due to the increased frequency of the TBS Pacific Liner
      Ltd.
      eastbound and westbound services, which decreased the need to space charter
      vessels.





The
      2.2%
      decrease in vessel expense as a percentage of revenue to 25.0% of revenue for
      the three months ended September 30, 2006, from 27.2% of revenue for the
      comparable period in 2005 was primarily due to an increase in revenue of $6.4
      million.





**Depreciation
      and amortization**





The
      $1.7
      million increase in depreciation and amortization expense of vessels and other
      fixed assets was due to the growth of our controlled fleet, which increased
      to
      an average of 32 vessels for the three months ended September 30, 2006, from
      an
      average of 28 vessels for the same period in 2005. The increase is also the
      result of additional depreciation and amortization expense on vessel capital
      improvements, incurred to insure the operating efficiency of the vessels through
      their remaining useful life, and other fixed assets.





Table
          of Contents
 26


**Management
      fees**





We
      paid
      management fees to our affiliated service companies, Roymar for technical
      management and TBS Shipping Services for operational management. In connection
      with our initial public offering, we purchased the stock of these two service
      companies and accordingly, their results of operations have been included in
      our
      consolidated financial statements as of the date of their acquisition in June
      2005. During the third quarter 2006, while we continued to pay management fees,
      the fees were eliminated in our consolidated financial statements and the actual
      costs of operations of these service companies have been included in general
      and
      administrative expenses. Management fees paid during the third quarter of 2005,
      prior to our acquisitions of these service companies, are included as management
      fees.




Technical
      management fee expense was $1.2 million for the three months ended September
      30,
      2006, prior to the elimination in consolidation, as compared to $980,000 for
      the
      same period in 2005. The increase was due to an increase in the average number
      of vessels under management.




Operational
      management fee expense was $870,000 for the three months ended September 30,
      2006, prior to the elimination in consolidation, as compared to $850,000 for
      the
      same period in 2005. Management fees are based on voyage days, which increased
      236 days or 8.2% to 3,102 days for the three months ended September 30, 2006
      from 2,866 days for the same period in 2005. For the three months ended
      September 30, 2005, management fees included fees earned for the management
      of a
      customer’s time chartered vessels.




**General
      and administrative expense**





The
      $1.9
      million increase in general and administrative expense for the three months
      ended September 30, 2006 as compared to the same period in 2005 was primarily
      due to $1.3 million of additional professional fees that we incurred as a public
      company, including $1.2 million of consulting fees dealing with the
      re-engineering of certain of our business processes to better meet our business
      needs as we grow. General and administrative expense also includes salary and
      related costs, which increased $0.2 million, and other expenses, which increased
      $0.4 million, for three months ended September 30, 2006 compared to the same
      period in 2005.





**Income
      from operations**





The
      $0.5
      million increase in income from operations for the three months ended September
      30, 2006 as compared to the three months ended September 30, 2005, was due
      to
      higher revenue offset by higher expenses. Our revenue increased due to an
      increase in the revenue tons we carried. The increase in voyage expense was
      mainly because of higher fuel costs. Vessel expense was relatively flat. General
      and administrative expense increased due to an increase in professional fees.
      Lastly, depreciation expense increased due to an increase in the number of
      owned
      vessels and an increase in vessel improvements and other fixed assets. The
      increase in expense were offset by a $2.2 million gain on sale of the Dakota
      Belle. For the same reasons, our operating margin decreased to 23.4% for the
      three months ended September 30, 2006 from 25.2% for the same period in
      2005.





**Interest
      expense**





The
      increase in interest expense of $3.5 million for the three months ended
      September 30, 2006, as compared to the same period in 2005 was primarily due
      to
      costs incurred in connection with our debt refinancing. Included in 2006
      interest expense is $2.2 million paid in early repayment fees and $1.3 million
      in write-offs of unamortized debt finance costs.




Table
          of Contents
 27


***Comparison
      of the nine months ended September 30, 2005 and 2006***


**Nine
                    Months Ended**
                
                **Nine
                    Months Ended****September
                    30, 2005**
                
                **September
                    30, 2006**
                
                **Increase
                    (Decrease)****In
                    Thousands**
                
                **As
                    a % of Total Revenue**
                
                **In
                    Thousands**
                
                **As
                    a % of Total Revenue**
                
                **In
                    Thousands**
                
                **Percentage**Voyage
                    revenue
                
                $
                129,364
                
                
                71.7
                
                $
                141,008
                
                
                74.9
                
                $
                11,644
                
                
                9.0Time
                    charter revenue
                
                
                50,487
                
                
                28.0
                
                
                45,911
                
                
                24.4
                
                
                (4,576
                )
                
                (9.1
                )Other
                    revenue
                
                
                598
                
                
                0.3
                
                
                1,233
                
                
                0.7
                
                
                635
                
                
                106.2Total
                    revenue
                
                
                180,449
                
                
                100.0
                
                
                188,152
                
                
                100.0
                
                
                7,703
                
                
                4.3Voyage
                    expense
                
                
                53,862
                
                
                29.7
                
                
                63,765
                
                
                33.9
                
                
                9,903
                
                
                18.4Vessel
                    expense
                
                
                52,247
                
                
                29.0
                
                
                52,754
                
                
                28.0
                
                
                507
                
                
                1.0Depreciation
                    and amortization
                
                
                11,792
                
                
                6.5
                
                
                20,560
                
                
                10.9
                
                
                8,768
                
                
                74.4Management
                    fees
                
                
                2,624
                
                
                1.5
                
                
                -
                
                
                -
                
                
                (2,624
                )
                
                (100.0
                )General
                    and administrative
                
                
                11,486
                
                
                6.4
                
                
                19,250
                
                
                10.3
                
                
                7,764
                
                
                67.6Gain
                    from sale of vessel
                
                
                -
                
                
                -
                
                
                (2,180
                )
                
                (1.2
                )
                
                (2,180
                )
                
                -Total
                    operating expenses
                
                
                132,011
                
                
                73.1
                
                
                154,149
                
                
                81.9
                
                
                22,138
                
                
                16.8Income
                    from operations
                
                
                48,438
                
                
                26.9
                
                
                34,003
                
                
                18.1
                
                
                (14,435
                )
                
                (29.8
                )Other
                    (expenses) and incomeInterest
                    expense
                
                
                (6,621
                )
                
                (3.7
                )
                
                (11,903
                )
                
                (6.3
                )
                
                (5,282
                )
                
                79.8Other
                    income
                
                
                411
                
                
                0.2
                
                
                801
                
                
                0.4
                
                
                390
                
                
                94.9Net
                    income
                
                $
                42,228
                
                
                23.4
                
                $
                22,901
                
                
                12.2
                
                $
                (19,327
                )
                
                (45.8
                )




**Voyage
      revenue**




The
      9.0%
      increase in our voyage revenue for the nine months ended September 30, 2006
      as
      compared to the same period in 2005 was primarily due to an increase in revenue
      tons carried offset by a decrease in freight rates. As mentioned in
      components of revenue and expense above, the key
      factors driving voyage revenue are the number of vessels in the fleet, freight
      voyage days and freight rates.




Revenue
      tons carried for the nine months ended September 30, 2006 as
      compared to the same period in 2005,
      increased 977,559 tons or
      44.0% to 3,196,856 tons for the nine months ended September 30, 2006 from
      2,219,297 tons for the same period in 2005. The increase in r evenue
      tons carried is
      due to an
      increase in aggregate bulk cargo carried and an increase
      in the number of vessels in our fleet ,
      which
      resulted in a higher
      number of voyages.




Table
          of Contents
 28


Freight
      rates for the nine months ended September 30, 2006 as
      compared to the same period in 2005,
      decreased $14.18
      per ton or 24.3% to $44.11 per ton in for the nine months ended September 30,
      2006 from $58.29 per ton for the same period of 2005. To
      a
      significant degree, freight rates, not under contract, are set by the market
      and
      depend on the relationship between the demand for ocean freight transportation
      and the availability of appropriate vessels. During
      the first six months of 2005 demand for dry bulk ocean shipping increased
      significantly due largely to the expansion of economies in East Asia, especially
      China. Beginning in the second half of 2005, freight rates began to decline
      from
      the levels reached earlier in the year as demand declined. Freight rates
      increased in mid 2006 as demand, specifically from China, increased.




For
      the
      nine months ended September 30, 2006, and 2005, we had contracts of
      affreightment, expiring through the end of 2006 and early 2007, under which
      we
      carried approximately 1,504,000 and 192,000 revenue tons and generated $49.2
      million and $9.1 million of voyage revenue, respectively.




Included
      in voyage revenue is revenue from high-volume, low-freighted aggregate bulk
      cargo. Excluding this type of bulk cargo, of which we carried 670,799 tons
      and
      78,338 tons for the nine months ended September 30, 2006 and
      2005, respectively, average
      freight rates would have been $53.13 per ton and $60.12 per ton for the nine
      months ended September 30, 2006 and 2005, respectively.




The
      increase in weighted average number
      of
      vessels in the fleet, freight
      voyage days and days on hire, excluding
      vessels time chartered out, and
      the
      decrease in freight rates for
      the
      nine months ended September 30, 2005 and 2006 are
      as
      follows:


**Nine
                  Months Ended September 30,****2005**
              
              **2006**
              
              **Increase
                  (Decrease)**Number
                  of vessels (1)
              
              
              18
              
              
              22
              
              
              4
              
              
              22.2
              %Freight
                  voyage days (2)
              
              
              4,779
              
              
              5,881
              
              
              1,102
              
              
              23.1
              %Days
                  on hire (3)
              
              
              5,019
              
              
              6,408
              
              
              1,389
              
              
              27.7
              %Freight
                  Rates (4)For
                  all cargoes
              
              $
              58.29
              
              $
              44.11
              
              $
              (14.18
              )
              
              (24.3
              )%Excluding
                  aggregates
              
              $
              60.12
              
              $
              53.13
              
              $
              (6.99
              )
              
              (11.6
              )%


_________




(1)
            Weighted
                average number of vessels in the fleet, not including off-hire days
                and
                not including vessels chartered out.(2)
            Number
                of days that our vessels were earning revenue, not including vessels
                chartered out.(3)
            Not
                including vessels chartered out.(4)
            Weighted
                average freight rates measured in dollars per
                ton.





Table
          of Contents
 29


The
      following table shows revenues attributed to our principal cargoes:


**Nine
                  Months Ended**
                **September
                  30, 2005**
              
              **Nine
                  Months Ended**
                **September
                  30, 2006**
              
              **Increase
                  (Decrease)****Description**
              
              **In
                  Thousands**
              
              **As
                  a % of Total Voyage Revenue**
              
              **In
                  Thousands**
              
              **As
                  a % of Total Voyage Revenue**
              
              **In
                  Thousands**
              
              **Percentage**Steel
                  products
              
              $
              52,558
              
              
              40.6
              
              $
              51,042
              
              
              36.2
              
              $
              (1,516
              )
              
              (2.9
              )Metal
                  concentrates
              
              
              19,361
              
              
              15.0
              
              
              20,193
              
              
              14.3
              
              
              832
              
              
              4.3Fertilizers
              
              
              11,201
              
              
              8.7
              
              
              4,465
              
              
              3.2
              
              
              (6,736
              )
              
              (60.1
              )Other
                  bulk cargo
              
              
              15,054
              
              
              11.6
              
              
              18,636
              
              
              13.2
              
              
              3,582
              
              
              23.8Project
                  cargo
              
              
              894
              
              
              0.7
              
              
              8,277
              
              
              5.9
              
              
              7,383
              
              
              825.8General
                  cargo
              
              
              8,067
              
              
              6.2
              
              
              5,723
              
              
              4.1
              
              
              (2,344
              )
              
              (29.1
              )Rolling
                  stock
              
              
              9,290
              
              
              7.2
              
              
              7,263
              
              
              5.1
              
              
              (2,027
              )
              
              (21.8
              )Agricultural
                  products
              
              
              7,209
              
              
              5.6
              
              
              19,182
              
              
              13.6
              
              
              11,973
              
              
              166.1Automotive
                  products
              
              
              2,305
              
              
              1.8
              
              
              3,189
              
              
              2.3
              
              
              884
              
              
              38.4Other
              
              
              3,425
              
              
              2.6
              
              
              3,038
              
              
              2.1
              
              
              (387
              )
              
              (11.3
              )Total
                  voyage revenue
              
              $
              129,364
              
              
              100.0
              
              
              141,008
              
              
              100.0
              
              $
              11,644
              
              
              9.0




**Time
      charter revenue**





Time
      charter revenue decreased 9.1% to $45.9 million for the nine months ended
      September 30, 2006 from $50.5 million for the comparable period in 2005. As
      mentioned in
      c omponents
      of revenue and expense, the key
      factors driving time charter revenue are the number of days that vessels are
      chartered out and the daily charter hire rates.




The
      decrease in time charter revenue was due to a decline in the average charter
      hire rate, which decreased $3,485 per day or 19.9% to $13,997 for the nine
      months ended September 30, 2006 from $17,482 for the comparable period in 2005.
      Average time charter rates for the nine months ended September 30, 2005 are
      reflective of higher than usual rates that we received during the first half
      of
      2005. Charter hire rates are set, to a significant degree, by the market and
      depend on the relationship between the demand for ocean freight transportation
      and the availability of appropriate vessels.




For
      the
      nine months ended September 30, 2006 and 2005, we had five and seven vessels
      chartered-out under long-term charters with average daily rates of $15,435
      and
      $16,237, respectively, which made up $17.5 million and $21.6 million,
      respectively of time charter revenue. At September 30, 2006, the long term
      time
      charters expire through August 2007.




The
      decrease in average charter rates was offset by an increase in the chartered
      vessel days, which increased 392 days or 13.6% to 3,280 days for the nine months
      ended September 30, 2006 from 2,888 days for the same period in 2005. The
      increase in time charter days was a result of an increase in the number of
      vessels in our fleet and our chartering out more vessels to better meet customer
      demands and to take advantage of time chartering opportunities on some voyages
      that did not have backhaul cargoes.




The
      increase in the number of vessels time chartered out, time charter days and
      the
      decrease in daily charter rates for the nine months ended September 30, 2005
      and
      2006 are as follows:




Table
          of Contents
 30




**Nine
                  Months Ended September 30,****2005**
              
              **2006**
              
              **Increase
                  (Decrease)**Number
                  of vessels (1)
              
              11
              
              12
              
              1
              
              9.1
                  %Time
                  Charter days (2)
              
              
              2,888
              
              
              3,280
              
              
              392
              
              
              13.6
              %Daily
                  charter hire rates (3)
              
              $
              17,482
              
              $
              13,997
              
              $
              (3,485
              )
              
              (19.9
              )%


_________




(1)
            Weighted
                average number of vessels chartered out.(2)
            Number
                of days vessels earned charter hire.(3)
            Weighted
                average charter hire rates.





**Voyage
      expense**





Voyage
      expense consists of costs attributable to specific voyages. The number and
      composition of total voyage days is a significant determinant of bunker fuel
      costs, voyage expense and commissions. During the nine months ended September
      30, 2006 as compared to the same period in 2005 total voyage days increased
      as
      we increased our fleet. The following table shows the change in the number
      and
      composition of total voyage days for the nine months ended September 30, 2006
      as
      compared to the same period in 2005.


**Nine
                  Months Ended September 30,****2005**
              
              **2006**
              
              **Increase
                  (Decrease)**Freight
                  voyage days
              
              4,779
              
              
              5,881
              
              
              1,102
              
              
              23.1
              %Time
                  charter days
              
              2,888
              
              
              3,280
              
              
              392
              
              
              13.6
              %Total
                  voyage days
              
              7,667
              
              
              9,161
              
              
              1,494
              
              
              19.5
              %


The
      principal components of voyage expense were as follows:


**Nine
                  Months Ended**
              
              **Nine
                  Months Ended****September
                  30, 2005**
              
              **September
                  30, 2006**
              
              **Increase
                  (Decrease)****In
                  Thousands**
              
              **As
                  a % of Voyage Expense**
              
              **As
                  a % of Revenue**
              
              **In
                  Thousands**
              
              **As
                  a % of Voyage Expense**
              
              **As
                  a % of Revenue**
              
              **In
                  Thousands**
              
              **Percentage**
              
              **As
                  a % of Revenue**Fuel
                  expense
              
              $
              18,707
              
              
              34.7
              
              
              10.4
              
              $
              28,457
              
              
              44.6
              
              
              15.1
              
              $
              9,750
              
              
              52.1
              
              
              4.7Commission
                  expense
              
              
              9,841
              
              
              18.3
              
              
              5.5
              
              
              7,733
              
              
              12.1
              
              
              4.1
              
              
              (2,108
              )
              
              (21.4
              )
              
              (1.4
              )Port
                  call expense
              
              
              11,638
              
              
              21.6
              
              
              6.4
              
              
              12,923
              
              
              20.3
              
              
              6.9
              
              
              1,285
              
              
              11.0
              
              
              0.5Stevedore
                  and othercargo-related
                  expense
              
              
              8,189
              
              
              15.2
              
              
              4.5
              
              
              8,904
              
              
              14.0
              
              
              4.7
              
              
              715
              
              
              8.7
              
              
              0.2Miscellaneous
                    voyage expense
              
              
              5,487
              
              
              10.2
              
              
              3.0
              
              
              5,748
              
              
              9.0
              
              
              3.1
              
              
              261
              
              
              4.8
              
              
              0.1Voyage
                  expense
              
              $
              53,862
              
              
              100.0
              
              
              29.8
              
              $
              63,765
              
              
              100.0
              
              
              33.9
              
              $
              9,903
              
              
              18.4
              
              
              4.1




Table
          of Contents
 31


Voyage
      expense increased 18.4% for the nine months ended September 30, 2006 as compared
      to the same period in 2005. The increase was due to an increase in fuel, port
      call, miscellaneous voyage and stevedore and other cargo related expenses offset
      by a decrease in commission expense. The 4.1% increase in voyage expense as
      a
      percentage of revenue, to 33.9% of revenue for the nine months ended September
      30, 2006 from 29.8% of revenue for the comparable period in 2005, was primarily
      due to the increase in fuel expense, which could not be fully recovered from
      our
      customers.




The
      52.1%
      increase in fuel expense was due to both an increase in the average price per
      metric ton ("MT") and consumption. For the nine months ended September 30,
      2006,
      the average price per MT and consumption increased to $373 per MT and 76,200
      MT,
      respectively, from $269 per MT and 69,436 MT for the same period in 2005. The
      increase in consumption was primarily due to an increase in the number of
      freight voyage days during the second quarter of 2006, which increased to 5,881
      days for the nine months ended September 30, 2006 from 4,779 days for the same
      period in 2005.




The 21.4%
      decrease in commission expense for the nine months ended September 30, 2006
      as
      compared to the same period in 2005 was due to the elimination in consolidation
      of commissions paid to TBS Shipping Services Inc. ("Services"). After we
      acquired Services in June 2005, we eliminated commissions paid in consolidation
      and included Services expenses, primarily salaries and related costs, in general
      and administrative expenses.




The
      11.0%
      increase in port call expense was primarily due to an increase in the number
      of
      port days to 2,942 days for the nine months ended September 30, 2006, from
      2,166
      days for the same period in 2005. The increase in port call expense is also
      due
      to the increase in the number of port calls made during the nine months ended
      September 30, 2006 and 2005 which increased to 646 port calls from 626 port
      calls, respectively.




Stevedore
      and other cargo-related expense for the nine months ended September 30, 2006
      increased as compared to the same period in 2005. Stevedore and other
      cargo-related expense fluctuate based on the cargo volume and shipping terms
      that cargo is booked under. The increase in cargo volumes accounted for much
      of
      the increase in expense and was offset by an in increase in cargo booked under
      free-in free-out terms. Cargo volumes increased to 3.2 million revenue tons
      for
      the nine months ended September 30, 2006, from 2.2 million revenue tons for
      the
      same period in 2005. For analysis we group cargoes into three categories: (1)
      cargo booked under "free-in free-out" terms which are shipments that the
      customer pays all or part of the costs of loading and unloading, (2) cargo
      booked under "full liner" terms which are shipments where we bear the costs
      of
      loading and unloading and (3) a combination of free-in free-out and full liner
      terms. For the nine months ended September 30, 2006, revenues from cargo booked
      under "free-in free-out" terms increased $2.2 million to $90.3 million for
      the
      nine months ended September 30, 2006 from $88.1 million for the same period
      in
      2005.





**Vessel
      expense**





Vessel
      expense consists of costs we incur to own and maintain our fleet that are not
      allocated to a specific voyage, such as charter hire rates for vessels we
      charter-in and drydocking, maintenance, insurance and crewing expenses for
      vessels we control. The following table sets forth the basic components of
      vessel expense:




Table
          of Contents
 32




**Nine
                  Months Ended**
              
              **Nine
                  Months Ended****September
                  30, 2005**
              
              **September
                  30, 2006**
              
              **Increase
                  (Decrease)****In
                  Thousands**
              
              **As
                  a % of Vessel Expense**
              
              **In
                  Thousands**
              
              **As
                  a % of Vessel Expense**
              
              **In
                  Thousands**
              
              **Percentage**Chartered-in
                  vessel expense
              
              $
              22,344
              
              
              42.8
              
              $
              14,497
              
              
              27.5
              
              $
              (7,847
              )
              
              (35.1
              )Owned
                  vessel expense
              
              
              27,150
              
              
              51.9
              
              
              36,453
              
              
              69.1
              
              
              9,303
              
              
              34.3Space
                  charter expense
              
              
              2,753
              
              
              5.3
              
              
              1,804
              
              
              3.4
              
              
              (949
              )
              
              (34.5
              )Vessel
                  expense
              
              $
              52,247
              
              
              100.0
              
              $
              52,754
              
              
              100.0
              
              $
              507
              
              
              1.0




Vessel
      expense for the nine months ended September 30, 2006 as compared to the same
      period in 2005, increased slightly. Specific expense categories varied due
      to a
      change in the composition of our fleet. For the nine months ended September
      30,
      2006, our fleet averaged 32 owned vessels as compared to an average of 24 owned
      vessels for the same period in 2005. As we increase the number of owned vessels,
      our demand for chartered-in vessels decreases.





The
      35.1%
      decrease in chartered-in vessel expenses for the nine months ended September
      30,
      2006 as compared to the same period in 2005 resulted from our chartering-in
      vessels for 365 fewer vessel days for the nine months ended September 30, 2006.
      We chartered-in vessels for 973 days for the nine months ended September 30,
      2006 as compared to 1,338 days for the same period in 2005. A decrease in the
      average charter-in rate per day also added to the decrease in chartered-in
      vessel expense. The average chartered-in vessel rate decreased $1,802 per day,
      or 10.8%, to $14,899 per day for the nine months ended September 30, 2006 from
      $16,701 per day for the same period in 2005.





The
      34.3%
      increase in owned vessel expense for the nine months ended September 30, 2006
      as
      compared to the same period in 2005 was due to a change in the composition
      of
      our fleet. The increase in average owned vessels translated to a 31.1% or 2,043
      day increase in vessel days to 8,612 days for the nine months ended September
      30, 2006 from 6,569 days for the same period in 2005. Operating expense day
      rates increased to $4,233 per day from $4,133 per day for the nine months ended
      September 30, 2006 and 2005, respectively.





Space
      charter expense is the cost paid to place cargo that we are committed to ship
      on
      vessels other than those that we control. The 34.5% decrease in space charter
      expense for the nine months ended September 30, 2006 as compared to the same
      period in 2005 was due to the increased frequency of the TBS Pacific Liner
      Ltd.
      eastbound and westbound services that decreased the need to space charter
      vessels.





**Depreciation
      and amortization**





The
      $8.8
      million increase in depreciation and amortization expense of vessels and other
      fixed assets was mainly due to the growth of our controlled fleet, which
      increased to an average of 32 vessels for the nine months ended September 30,
      2006, from an average of 24 vessels for the same period in 2005. The increase
      is
      also the result of additional depreciation and amortization expense on vessel
      capital improvements, incurred to insure the operating efficiency of the vessels
      through their remaining useful life, and other fixed assets.





Table
          of Contents
 33


**Management
      fees**





We
      paid
      management fees to our affiliated service companies, Roymar for technical
      management and TBS Shipping Services for operational management. In connection
      with our initial public offering, we purchased the stock of these two service
      companies and accordingly, their results of operations have been included in
      our
      consolidated financial statements as of the date of their acquisition in June
      2005. During 2006, while we continued to pay management fees, the fees were
      eliminated in our consolidated financial statements and the actual costs of
      operations of these service companies have been included in general and
      administrative expenses. Management fees paid during the nine months ended
      September 30, 2005, prior to our acquisitions of these service companies, are
      included as management fees.




Technical
      management fee expense was $3.4 million for the nine months ended September
      30,
      2006, prior to the elimination in consolidation, as compared to $2.5 million
      for
      the same period in 2005. The increase was due to an increase in the average
      number of vessels under management, which increased to an average of 32 vessels
      for the nine months ended September 30, 2006, from an average of 24 vessels
      for
      the same period in 2005.




Operational
      management fee expense was $2.6 million for the nine months ended September
      30,
      2006, prior to the elimination in consolidation, as compared to $2.1 million
      for
      the same period in 2005. Management fees are based on total voyage days, which
      increased 1,494 days or 19.5% to 9,161 days for the nine months ended September
      30, 2006 from 7,667 days for the same period in 2005.




**General
      and administrative expense**





The
      $7.8
      million increase in general and administrative expense for the nine months
      ended
      September 30, 2006 as compared to the same period in 2005 was primarily due
      to
      $3.5 million of additional professional fees that we incurred as a public
      company, including consulting fees dealing with the re-engineering of certain
      of
      our business processes to better meet our business needs as we grow. General
      and
      administrative expenses also increased due to a $2.4 million increase in salary
      and related costs (see below for a further explanation), a $0.3 million increase
      in travel cost and a $1.5 million increase in other and miscellaneous expenses
      (principally office overhead costs) for the nine months ended September 30,
      2006
      as compared to the same period in 2005.




Salary
      and related costs for the nine months ended September 30, 2006 includes a full
      nine months of payroll costs; however, salary and related costs for the nine
      months ended September 30, 2005 includes payroll costs only from the date of
      our
      acquisition of Roymar and TBS Shipping Services in late June 2005. The increase
      in payroll and related costs is due to the acquisition of Roymar and TBS
      Shipping Services, which was partially offset by a one time bonus of $2.2
      million paid in June 2005 to our chief financial officer and a one time share
      grant to our employees and related payroll taxes of $1.9 million made in
      connection with our initial public offering.




Other
      and
      miscellaneous costs for the nine months ended September 30, 2006 includes a
      full
      nine months of costs; however, as with salary and related costs, other and
      miscellaneous costs for the nine months ended September 30, 2005, includes
      costs
      only from the date of our acquisition of Roymar and TBS Shipping Services in
      late June 2005.




Prior
      to
      our acquisition of Roymar and TBS Shipping Services, we were charged management
      fees and commissions. Accordingly, these costs were reflected as management
      fees
      and as commissions included in voyage expense and not as general and
      administrative costs.




Table
          of Contents
 34


**Income
      from operations**





The
      $14.4
      million decrease in income from operations for the nine months ended September
      30, 2006 as compared to the nine months ended September 30, 2005, was mainly
      attributable to an increase in voyage expense, specifically fuel costs,
      depreciation and general and administration expense reduced by a decrease in
      gain on sale of vessel, management fees and commissions. As discussed above,
      due
      to our acquisition of Roymar and TBS Shipping Services in late June 2005,
      management and commissions charges are eliminated in the consolidation of our
      financial statements and the related costs are reflected in general and
      administrative expense. The net increase in expenses was partially offset by
      an
      increase in revenue. For the same reasons, our operating margin decreased to
      18.1% for the nine months ended September 30, 2006 from 26.9% for the same
      period in 2005.





**Interest
      expense**





The
      $5.3
      million increase in interest expense for the nine months ended September 30,
      2006, as compared to the same period in 2005 was primarily due to costs incurred
      in connection with our debt refinancing. Included in interest expense is $2.1
      million paid in early repayment fees and $1.3 million in write-offs of
      unamortized debt finance costs. The remaining increase in interest expense
      is
      attributed to higher average debt levels during the nine months ended September
      30, 2006 compared to the same period in 2005, and to a lesser extent an increase
      in interest rates. We added $25.0 million in debt in June and July 2005 and
      $17.5 million of debt in December 2005.




***Liquidity
      and Capital Resources***




Our
      principal sources of funds are operating cash flows, long-term bank borrowings
      and capital lease obligations. Our principal uses of funds were capital
      expenditures to establish and grow our fleet, maintain the quality of our ships
      and keep us in compliance with international shipping standards and regulations,
      fund working capital requirements and make interest and principal repayments
      on
      outstanding loan facilities and capital lease obligations.





Our
      practice has been to acquire ships using a combination of funds from operating
      cash flows, debt secured by mortgages on our ships and long-term capital lease
      arrangements. We expect to use our operating cash flows, not otherwise committed
      to the payment of interest and principal on outstanding debt and borrowings
      to
      fund vessel acquisitions. Our business is capital intensive, and its future
      success will depend on our ability to maintain a high-quality fleet through
      the
      ongoing maintenance of our currently owned ships and the acquisition of ships.
      These acquisitions will be principally subject to management's expectation
      of
      future market conditions as well as our ability to acquire appropriate
      ships.





On
      July
      31, 2006, we entered into a $140.0 million credit facility with a syndicate
      of
      commercial lenders ("Credit Facility") led by Bank of America. The Credit
      Facility is composed of a $65.0 million revolving credit facility and a $75.0
      million term loan facility. Borrowings under the Credit Facility have been
      used
      to refinance existing term borrowings under credit facilities with GMAC, Merrill
      Lynch, AIG and Bank of America. Pursuant to the Credit Facility, the Company
      made a drawdown on the term loan of $75.0 million and an initial drawdown of
      $10.0 million on the revolving credit facility to repay $80.4 million
      outstanding under term loans with the Existing Lenders and cover costs
      associated with the refinancing. In August, we drew down an additional $9.0
      million on the revolving credit facility to fund the deposit payments on the
      purchase of the bulk carriers *Clipper
      Flamingo* and *Clipper
      Frontier* .
      Both
      vessels are expected to be delivered in November 2006.  The
      Credit Facility provides a four-year self-amortizing term loan with quarterly
      principal payments due of approximately $4.7 million beginning September 2006.
      The non-amortizing revolving loan is due July 2010. The new Credit Facility
      increases our borrowing capacity enabling us to execute our growth strategy,
      provides us with better terms and simplifies the administration of our debt,
      as
      we now consolidate into a single facility the majority of our existing
      indebtedness incurred under several facilities. We believe that our current
      cash
      balance as well as operating cash flows and available borrowings under our
      new
      Credit Facility will be sufficient to meet our liquidity needs for the next
      twelve months.




Table
          of Contents
 35


**Changes
      in Cash and Cash Equivalents**




Cash
      and
      cash equivalents at December 31, 2005 and September 30, 2006 were $27.2 million
      and $15.7 million, respectively. The decrease in cash and cash equivalents
      was
      principally due to capital improvement expenditures and repayment of debt,
      as
      discussed in detail below:




**Cash
      Flows from Operating Activities**




Net
      cash
      from operating activities for the nine months ended September 30, 2006, was
      primarily a result of net income of $22.9 million and depreciation and
      amortization charges of $20.6 million. Net cash from operating activities for
      the nine months ended September 30, 2005, was primarily a result of net income
      of $42.2 million and depreciation and amortization charges of $11.8 million.
      The
      decrease in net income for the nine months ended September 30, 2006 compared
      to
      the same period in 2005 was mainly attributable, as discussed previously, to
      an
      increase in voyage expense, specifically fuel costs, depreciation and general
      and administration expense, partially offset by an increase in
      revenue.




**Cash
      Flows from Investing Activities**




During
      the nine months ended September 30, 2006, we paid $28.2 million for vessel
      acquisitions and capital improvement costs, consisting of $8.1 million for
      the
      acquisition of the vessel *Kibishio
      Maru* (renamed
      the *Aztec Maiden* ),
      $3.6
      million for take over costs incurred in connection with recent vessel
      acquisitions, $13.0 million for vessel capital improvements and $3.5 million
      for
      the purchase of other assets, such as equipment which enables self-loading
      and
      discharging and computer equipment for the vessels. In addition, we made deposit
      payments on the purchase of the bulk carriers *Clipper
      Flamingo* and *Clipper
      Frontier* of
      $9.0
      million. Both vessels are expected to be delivered in November 2006 for a total
      acquisition cost of $45.1 million. During the nine months ended September 30,
      2006, we sold the vessel *Dakota
      Belle* for $3.2
      million and made an investment and loans to a joint venture with GMT Shipping
      Line Ltd. totaling $0.5 million.




During
      the nine months ended September 30, 2005, we acquired 11 vessels, excluding
      the *Rockaway
      Belle* on which
      we exercised our purchase option. We paid $143.7 million during the nine months
      ended September 30, 2005, of which $130.2 million was paid upon delivery of
      vessels, $11.0 million was paid for take over costs incurred in connection
      with
      the acquisition of the vessels, $1.7 million was paid for vessel capital
      improvements, and $0.8 million was paid for other fixed assets. In addition,
      we
      made a deposit of $1.9 million for the *Sioux
      Maiden* .
      The
      vessel had a purchase price of $18.5 million and was delivered on November
      8,
      2005. In connection with our initial public offering we purchased all the stock
      of TBS Shipping Services and Roymar for $7.3 million, which represents the
      purchase price of $7.5 million, plus the undistributed earnings of each company
      for the period January 1, 2005 through the date of acquisition of $0.6 million
      which was paid in September 2005, less net cash acquired of $0.8 million. We
      also paid $0.5 million security in connection with the claim relating to the
      acquisition of the vessel *Tamoyo
      Maiden* (formerly
      the *Sea
      Pantheon* ).
      The
      arbitrators reached a decision in our favor in September 2006 - see Part
      II, Item
      1,
      Legal Proceedings, for further discussion.




**Cash
      Flows from Financing Activities**




For
      the
      nine months ended September 30, 2006, net cash used in financing activities
      was
      $19.2 million. Principal repayments for the nine months ended September 30,
      2006
      was $108.0 million. Included in this amount is $80.4 million of outstanding
      term
      loans with GMAC, Merrill Lynch, AIG and Bank of America that were repaid with
      the proceeds from the $140.0 million credit facility that we entered into with
      a
      syndicate of commercial lenders on July 31, 2006. See Part I, Item 1, Note
      7 -
      Financing. We borrowed $85.0 million under the credit facility to repay certain
      outstanding loans and cover costs associated with the refinancing. We paid
      $2.8
      million in deferred financing charges in connection with the refinancing. We
      drew down $9.0 million on the revolving credit facility to fund the deposit
      payments on the purchase of the bulk carriers *Clipper
      Flamingo* and *Clipper
      Frontier* .
      For the
      nine months ended September 30, 2006 we made scheduled and other debt repayments
      of $27.6 million, including $3.2 million repayment of the revolving credit
      facility upon the sale of the Dakota Belle. We also made repayments of $2.4
      million on obligations under capital leases.




Table
          of Contents
 36


For
      the
      nine months ended September 30, 2005 net cash provided by financing activities
      was $113.2 million consisting of $61.6 million of net proceeds from the issuance
      of Class A common shares in our initial public offering and $77.5 million of
      long-term bank borrowings to finance the purchase of vessels, reduced by $20.8
      million of debt repayment and $5.0 million of repayments of obligations under
      capital leases. The $5.0 million includes the payment of the purchase option
      of
      $2.5 million under the capital lease for the *Rockaway
      Belle* .
      We also
      paid a dividend on our preferred stock of $0.1 million. We borrowed $12.0
      million, on a temporary basis, under our revolving credit facility on June
      17,
      2005 to fund our working capital. We used a portion of the net proceeds of
      our
      public offering to repay these borrowings.




**Charter
      Hire Receivables**




Our
      gross
      charter hire receivables balance at September 30, 2006 and December 31, 2005
      was
      $16.8 million ($16.4 million net of allowance for doubtful accounts) and $26.2
      million ($25.5 million net of allowance for doubtful accounts), respectively.
      The decrease in receivables was due principally to the collection of several
      larger than usual outstanding receivables at December 31, 2005, including the
      receivable from Military Sealift Command of $2.2 million and a decrease in
      outstanding charter hire receivables related to the timing of voyages in
      progress as of December 31, 2005 compared to September 30, 2006.




In
      accordance with our reserve policy, we reserve for a percentage of outstanding
      receivables, usually between 2% and 3%, based on prior years' experience. Our
      management also identifies specific receivables that it believes we will have
      difficulty collecting and creates additional reserves for those balances. At
      September 30, 2006, our general reserve totaled $0.5 million with no additional
      reserves. At December 31, 2005, our general reserve and additional reserves
      totaled $0.6 million and $0.1 million, respectively.




**Claims
      receivable**




Claims
      receivable at September 30, 2006 increased $1.7 million from the December 31,
      2005 balance of $0.5 million, due to hull and machinery claims on three of
      our
      vessels. We anticipate receiving the insurance proceeds on these claims the
      end
      of 2006 or early 2007.




**Fuel
      and Other Inventories**




Fuel
      and
      other inventory at September 30, 2006 decreased $0.1 million from the December
      31, 2005 balance of $7.6 million. Approximately $0.8 million of the decrease
      was
      due to lower quantities of fuel on board the vessels at September 30, 2006.
      The
      change in fuel quantities resulted principally from the timing of vessel
      refueling and from fewer vessels having on-board fuel included in inventory.
      Vessels included in inventory decreased to 22 vessels as of September 30, 2006,
      compared to 24 vessels as of December 31, 2005, as more vessels were time
      chartered out. The decrease in fuel due to lower quantities was offset by an
      increase of approximately $0.4 million due to higher fuel prices, which
      increased to a combined average of $381 per metric ton for industrial fuel
      oil/marine diesel oil ("IFO/MDO") at September 30, 2006 from a combined average
      price of $352 per metric ton for IFO/MDO at December 31, 2005. The decrease
      in
      fuel inventory at September 30, 2006 was offset by an increase of $0.5 million
      in lubricating oil on board the vessels at September 30, 2006, which results
      principally from the timing of deliveries to the vessels and a decrease of
      $0.2
      million in lashings materials and provisions.







Table
          of Contents
 37




**Other
      Commitments**


Our
        contractual obligations as of September 30, 2006 are shown in the following
        table:
 **Total**
                
                **Less
                    than 1 year**
                
                **1-3
                    years**
                
                **3-5
                    years**
                
                **More
                    than 5 years**Debt
                    Obligations (1)
                
                
                91,747
                
                
                19,770
                
                
                39,540
                
                
                32,437
                
                
                -Capital
                    lease obligations
                
                
                27,831
                
                
                6,388
                
                
                21,443
                
                
                -
                
                
                -Operating
                    Lease obligations
                
                
                2,080
                
                
                1,387
                
                
                693
                
                
                -
                
                
                -Other
                    Purchase obligations (2)
                
                
                36,080
                
                
                36,080Total
                    contractual cash obligations
                
                $
                157,738
                
                $
                63,625
                
                $
                61,676
                
                $
                32,437
                
                $
                -




(1)
            As
                of September 30, 2006, we had $91.7 million of indebtedness outstanding
                made up of $5.6 million under our credit facility with the Royal
                Bank of
                Scotland plc and $86.1 million under our credit facility with a syndicate
                of commercial lenders led byBank
                of America. The$86.1
                millionoutstanding
                under the Bank of Americacredit
                facilityconsist of$70.3
                million outstanding under the term loan and $15.8 million outstanding
                under the revolving credit
                facility.


At
                September 30, 2006, the Company was in compliance with all financial
                covenants required under theRoyal
                Bank of Scotland plc andBank
                of America syndicated credit facilities.


(2)
            We
                entered into memorandum of agreements to purchase the vessel Clipper
                Flamingo for $23.1 million and the vessel Clipper Frontier for $22.0
                million. We paid a deposit of $9.0 million in August 2006 and will
                pay the
                balance of $36.1 million when we take delivery in November 2006.




***Dividend
      Policy***




We
      have
      not declared or paid and do not anticipate declaring or paying any cash
      dividends on our common shares in the foreseeable future. The provisions of
      some
      of our debt instruments and related loan agreements prevent some of our
      subsidiaries from paying dividends to TBS
      International Limited, which may restrict our ability to pay dividends on our
      common shares. The timing and amount of future cash dividends, if any, would
      be
      determined by our board of directors and would depend upon our earnings,
      financial condition, cash requirements and obligations to lenders at the
      time.




Pursuant
      to Bermuda law, we cannot declare or pay a dividend, or make a distribution
      out
      of contributed surplus, if there are reasonable grounds for believing that
      we
      are, or after the payment would be, unable to pay our liabilities as they become
      due, or that the realizable value of our assets would thereby be less than
      the
      aggregate of our liabilities, our issued share capital and our share premium
      accounts.




Because
      we are a holding company with no material assets other than the stock of our
      subsidiaries, our ability to pay dividends will depend on the earnings and
      cash
      flow of our subsidiaries and their ability to pay dividends to us.




***Significant
        Related Party Transactions***
  Pursuant
        to agency agreements, our operations have been planned, executed and supervised
        by TBS Shipping Services, Roymar and TBS Commercial Group and its subsidiaries
        in exchange for fees and commissions paid by us to such entities. Messrs.
        James W. Bayley, Lawrence A. Blatte, Gregg L. McNelis, Captain Alkis N. Meimaris
        and Joseph E. Royce, collectively and beneficially own approximately 64.3%
        of
        our issued and outstanding common shares. Each of these individuals is also
        a
        principal of, and all of these individuals together control, TBS Commercial
        Group. Lawrence A. Blatte, Gregg L. McNelis, Captain Alkis N. Meimaris and
        Joseph E. Royce had been principals of and together controlled TBS Shipping
        Services and Roymar prior to our acquisition of these companies in June 2005.
        See Part I, Item 1, Note 3 - Acquisition of TBS Shipping Services Inc. and
        Roymar Ship Management, Inc. We believe that the transactions described below
        are on terms no less favorable than those that could be obtained pursuant
        to
        arm's-length negotiations with independent third parties.


Table
          of Contents
 38


We
        have
        established long-term commercial and operational relationships with other
        commercial agency service companies that are located in various overseas
        ports
        in which we conduct our business. The majority of these companies are wholly-
        or
        partly-owned direct or indirect subsidiaries of TBS Commercial Group. Under
        the
        arrangements with these commercial agents, we generally pay a commission,
        based
        upon market rates, on freight revenue booked by the agent and on certain
        freights where they attend to the receivers of the cargo. Under the arrangements
        with the ship agents, we pay fees, based on market rates, to the agents for
        attending vessels while in port. For the three months ended September 30,
        2006
        and 2005 and the nine months ended September 30, 2006 and 2005, we paid TBS
        Commercial Group $1.4 million, $1.4 million, $4.5 million and $4.6 million,
        respectively.




Globe
      Maritime Limited (""Globe""), owned by James W. Bayley, acted as our chartering
      broker and charged commissions for arranging charters through December 31,
      2005.
      Globe Maritime Limited will continue acting as our broker on the sale and
      purchase of vessels for which it will earn a commission. Commissions paid to
      Globe are based upon market rates. We paid Globe Maritime no commissions for
      the
      three months ended September 30, 2006 and 2005, and commissions of $81,000
      and
      $32,922 for the nine months ended September 30, 2006 and 2005, respectively.
      Commissions of $81,000 paid during the second quarter of 2006 related to our
      acquisition of the *Kibishio Maru* (renamed *Aztec
      Maiden* ).




TBS
      Shipping Services maintains an office in Yonkers, New York that is leased from
      our chairman and chief executive officer, Joseph E. Royce. For the three months
      ended September 30, 2006 and 2005 and the nine months ended September 30, 2006
      and 2005, we paid Mr. Royce $60,000, $60,000, $180,000, and $180,000,
      respectively. Lease payments of $240,000 per year are required under the lease.




Mr.
      Blatte, who became an officer of the Company in March 2005, provided and was
      paid for legal and consulting services to the Company and its affiliates before
      he beacme an officer. For the three months and nine months ended September
      30,
      2005, the Company paid Mr. Blatte $134,110 and $503,133 for legal services
      respectively. During the nine months ended September 30, 2005, TBS Shipping
      Services Inc. made payments totalling $150,000 to Mr. Blatte for legal services.
      Effective January 1, 2006, Mr. Blatte retired as a lawyer and did not perform
      any legal services for the Company or its affiliates.




Our
      board
      has delegated authority to the compensation committee to review and approve,
      on
      an annual basis, all transactions with our executive officers, directors and
      affiliates.




***Summary
        of Critical Accounting Policies***
  The
        Company’s discussion and analysis of its results of operations, financial
        condition and liquidity are based upon the Company’s consolidated financial
        statements, which have been prepared in accordance with accounting principles
        generally accepted in the United States of America. The preparation of these
        financial statements requires the Company to make estimates and judgments
        that
        affect the reported amounts of assets and liabilities and disclosure of
        contingent assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenues and expenses during the reporting period.
        The
        Company bases its estimates on historical experience and on various other
        assumptions that are believed to be reasonable under the circumstances. Actual
        results may materially differ from these estimates under different assumptions
        or conditions.


Table
          of Contents
 39


Critical
        accounting policies are those that reflect significant judgments or
        uncertainties and could result in materially different results under different
        assumptions and conditions. There has been no change in or additions to our
        critical accounting policies from those disclosed in our Form 10-K filed
        March
        16, 2006.




***New
      Accounting Pronouncements***




In
      September 2006, the SEC staff issued Staff Accounting Bulletin (SAB) No. 108, *“Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements”* (SAB
      108). SAB 108 was issued in order to eliminate the diversity of practice in
      how
      public companies quantify misstatements of financial statements, including
      misstatements that were not material to prior years’ financial statements. We
      will initially apply the provisions of SAB 108 in connection with the
      preparation of our annual financial statements for the year ending December
      31,
      2006. We are in the process of determining the impact, if any, that SAB 108
      may
      have on our consolidated financial statements; however, we do not believe that
      the impact of the application of this guidance will be material.




In
      September 2006, the FASB issued SFAS No.157, " *Fair
      Value Measurements* "
      ("SFAS
      157") which defines and establishes a framework for measuring fair value and
      expands disclosures about fair value measurements. The accounting provisions
      of
      SFAS 157 are effective for the Company beginning on January 1, 2008. We are
      in the process of evaluating the effect, if any, that the adoption of SFAS
      157
      will have on our consolidated financial statements.




On
      September 8, 2006, the FASB issued an FSP that addressed the accounting for
      planned major maintenance activities. This FSP amends certain provisions in
      the
      AICPA Industry Audit Guide, *Audits
      of Airlines* ("Airline
      Guide"), which is the principal source of guidance on the accounting for planned
      major maintenance and is relevant to both the aviation and maritime industries.
      The Airline Guide, prior to the amendment, permitted four alternative methods
      of
      accounting for planned major maintenance activities: direct expense, built-in
      overhaul, deferral, and accrual (accrue-in-advance). We currently use the
      accrual method to account for planned major maintenance. Under this method,
      we
      estimate the cost of a future dry-docking and accrue the monthly cost over
      the
      period through the date of the dry-docking. The new FSP would prohibit the
      use
      of the accrual method. We are in the process of determining the retrospective
      effect on our consolidated financial statements of the change to the deferral
      method. Under the deferral method of accounting for dry-docking, the actual
      costs incurred are deferred and are amortized on a straight-line basis over
      the
      period through the date of the next dry-docking. The amended guidance in the
      FSP
      will apply to the Company beginning on January 1, 2007, although earlier
      adoption is encouraged.





In
      July 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48")
      "Accounting for Uncertainty in Income Taxes"" which prescribes a recognition
      threshold and measurement process for recording in the financial statements
      uncertain tax positions taken or expected to be taken in a tax return.
      Additionally, FIN 48 provides guidance on the derecognition, classification,
      accounting in interim periods and disclosure requirements for uncertain tax
      positions. The accounting provisions of FIN 48 will be effective for the Company
      beginning January 1, 2007. We are in the process of determining the effect,
      if any, that the adoption of FIN 48 will have on our financial
      statements .




In
      May 2005, the FASB issued SFAS No. 154, "*Accounting
      Changes and Error Corrections*"
      ("SFAS
      154"), which replaces Accounting Principles Board Opinion ("APB") No. 20,
      "*Accounting
      Changes,"*,
      and
      SFAS No. 3, "*Reporting
      Accounting Changes in Interim Financial Statements.*"
      SFAS
      154 changes the requirements for the accounting for and reporting of a change
      in
      accounting principle, and applies to all voluntary changes in accounting
      principles, as well as changes required by an accounting pronouncement in the
      unusual instance that it does not include specific transition provisions.
      Specifically, SFAS 154 requires retrospective application to prior period’s
      financial statements, unless it is impracticable to determine the
      period-specific effects or the cumulative effect of the change. SFAS 154 does
      not change the transition provisions of any existing pronouncement. SFAS 154
      is
      effective for the Company for all accounting changes and corrections of errors
      made beginning January 1, 2006.




Table
          of Contents
 40


In
      December 2004, the FASB issued SFAS No. 123R, " *Share-Based
      Payment* "
      ("SFAS
      123R"). SFAS 123R revises previously issued SFAS 123, " *Accounting
      for Stock-Based Compensation* ,"
      supersedes APB No. 25 " *Accounting
      for Stock Issued to Employees,* "
      and
      amends SFAS Statement No. 95, " *Statement
      of Cash Flows.* "
      SFAS
      123R requires the Company to expense the fair value of employee share options
      and other forms of share-based compensation for the annual periods beginning
      after June 15, 2005. The cost will be recognized over the period during which
      an
      employee is required to provide services in exchange for the award. The
      share-based award must be classified as equity or as a liability and the
      compensation cost is measured based on the fair value of the award at the date
      of the grant. In addition, liability awards will be re-measured at fair value
      each reporting period. The Company adopted SFAS 123R effective January 1, 2006,
      using the modified prospective method which requires measurement of compensation
      cost for all stock-based awards at fair value on date of grant and recognition
      of compensation over the service period for award results of operations, cash
      flows or financial position because the use of the intrinsic value method under
      Accounting Principles Board Opinion No. 25 " *Accounting
      for Stock Issued to Employees* "
      previously used by the Company and the fair value base method currently used
      under SFAS 123R results in the same amount of compensation expense
      recognized. See Part I, Item 1, Note 10 - Stock Plan.





**Item
      3.** **Quantitative and Qualitative Disclosures About Market
      Risk**





***Interest
      Rate Risk:***




We
      are
      exposed to various market risks associated with changes in interest rates.
      The
      exposure to interest rate risk relates to our floating rate debt. At September
      30, 2006, we had $91.7 million of floating rate debt with margins over the
      LIBOR
      rate of 1.5% and 2.25% compared to $96.1 million of floating rate debt as of
      December 31, 2005. As an indication of the extent of our sensitivity to interest
      rate changes, an increase in the LIBOR rate of 100 basis points would have
      decreased our net income and cash flows for the nine months ended September
      30,
      2006 by approximately $688,000 based upon our debt level at September 30,
      2006.  Weentered
      into an interest rate swap on November 2, 2006, effectively converting $56.2
      million of its borrowings under the Bank of America Credit Facility from a
      floating to a fixed-rate. Exclusive of the applicable margin, the Company will
      pay interest based on a fixed LIBOR rate of 5.09% for the next
      four-years.   If the interest rate swap had been in place at September
      30, 2006, our sensitivity to interest rate changes for a 100 basis points change
      in the LIBOR rate would have decreased from $688,000 to $267,000 for the
      nine months ended September 30, 2006, based upon our debt level at September
      30,
      2006.




***Foreign
      Exchange Rate Risk:***




We
      consider the U.S. dollar to be the functional currency for all of our entities.
      Our financial results are affected by changes in foreign exchange rates. Changes
      in foreign exchange rates could adversely affect our earnings. We generate
      all
      of our revenues in U.S. dollars, but incur approximately 9.3% of our operating
      expenses in currencies other than U.S. dollars. For accounting purposes,
      expenses incurred in currencies other than U.S. dollars are converted into
      U.S.
      dollars at the exchange rate prevailing on the date of each transaction. At
      September 30, 2006, approximately 5.8% of our outstanding accounts payable
      were
      denominated in currencies other than U.S. dollars.





**Item
      4.** **Controls and
      Procedures**




As
      of
      September 30, 2006, an evaluation was performed under the supervision and with
      the participation of the Company's management, including the Chief Executive
      Officer ("CEO"), Chief Financial Officer ("CFO"), and Chief Accounting Officer
      ("CAO"), of the effectiveness of the design and operation of the Company's
      disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
      under the Exchange Act). Based on that evaluation, the Company's management,
      including the CEO, CFO and CAO, concluded that the Company's current disclosure
      controls and procedures were effective as of September 30, 2006. There have
      been
      no changes in the Company's internal control over financial reporting that
      have
      materially affected, or are reasonably likely to materially affect, our internal
      control over financial reporting during the period covered by this quarterly
      report.






Table
          of Contents
 41


**PART
      II**


**Item
      1.** **Legal
      Proceedings**





In
      connection with the acquisition of the vessel *Sea
      Pantheon* (renamed *Tamoyo
      Maiden),* the
      Company sought damages for the cost of repairs and loss of hire related to
      ballast tank contamination discovered after delivery of the vessel. As specified
      in the purchase agreement, the dispute was made in London before an arbitration
      tribunal selected by the Company and the seller. The Company, through its
      subsidiary, had an associated vessel that is owned by a company related to
      the
      seller arrested to secure its claim. That vessel was released upon the seller's
      providing a bank guarantee in the amount of $2.1 million. The seller alleged
      damages due to the arrest of the associated vessel and the Company, as required
      under English law, deposited in escrow $750,000 on June 6, 2005, as
      counter-security to provide for estimated arbitration/litigation costs. On
      August 17, 2005, we obtained a reduction of $217,500 in the amount of the
      counter-security to $532,500. Arbitration proceedings took place in April 2006,
      as disclosed in our quarterly report for the quarter ended June 30, 2006, filed
      with the SEC on August 10, 2006. On September 4, 2006, the Arbitrators issued
      a
      decision in the Company’s favor, finding that the seller was in breach of the
      contract and is responsible for the cost of repair and cleaning. We anticipate
      receiving an award of between $0.9 million and $1.0 million. In October 2006,
      our counter security of $532,500 was returned with interest and accordingly,
      the
      amount has been included in other receivables in our consolidated balance
      sheet.




We
      are
      periodically a defendant in cases involving personal injury, property damage
      claims and other matters that arise in the normal course of business. While
      any
      pending or threatened litigation has an element of uncertainty, we believe
      that
      the legal proceedings pending against us, individually or in the aggregate,
      will
      not materially adversely affect our consolidated financial position, results
      of
      operations or cash flows.




**Item
      1A. Risk Factors**





We
      believe that there have not been any material changes to the risk factors
      previously disclosed in our Form 10-K for the fiscal year ended December 31,
      2005, filed with the SEC on March 16, 2006. The Risk Factors are hereby
      incorporated in Part II, Item 1A of this Form 10-Q. The risk factors and
      other information disclosed in our Form 10-K should be carefully considered
      prior to making an investment decision with respect to the Company’s stock. The
      risks and uncertainties described in our Form 10-K are not the only ones we
      face. Additional risks and uncertainties not presently known to us or that
      we
      currently deem immaterial also may impair our business operations. If any of
      the
      risks occur, our business, financial condition, operating results and cash
      flows
      could be materially adversely affected and the trading price of our common
      stock
      could decline.







**Item
        2 **Unregistered Sales of Equity
        Securities and Use of Proceeds****


None.





**Item
      3** **Defaults Upon Senior
      Securities**





None.





**Item
      4** **Submission
      of Matters to a Vote of Security Holders**





None.




**Item
      5 Other Information**




None.





Table
          of Contents
 42


**Item
      6** **Exhibits**




3.1
            Amended
                and Restated Memorandum of Association, incorporated by reference
                to
                Exhibit 3.1 to the Registrant's
                Quarterly Report on Form 10-Q, as filed with the Commission on August
                12,
                2005(Commission
                file number 000-51368).


3.2
            Amended
                and Restated Bye-laws, incorporated by reference to Exhibit 3.2 to
                the
                Registrant's Quarterly
                Report on Form 10-Q, as filed with the Commission on August 12, 2005
                (RegistrationStatement
                number 000-51368).




31.1*
            Certification
                of the Chief Executive Officer pursuant to rules 13a-15(a) and 15d-15(a)
                under the Securities Exchange Act of 1934, as adopted pursuant to
                Section
                302 of the Sarbanes-Oxley Act of
                2002






31.2*
            Certification
                of the Chief Financial Officer pursuant to rules 13a-15(a) and 15d-15(a)
                under the Securities Exchange Act of 1934, as adopted pursuant to
                Section
                302 of the Sarbanes-Oxley Act of
                2002






31.3*
            Certification
                of the Chief Accounting Officer pursuant to rules 13a-15(a) and 15d-15(a)
                under the Securities Exchange Act of 1934, as adopted pursuant to
                Section
                302 of the Sarbanes-Oxley Act of
                2002






32*
            Certification
                of the Chief Executive Officer, Chief Financial Officer and Chief
                Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted
                pursuant
                to Section 906 of the Sarbanes-Oxley Act of 2002.


__________


*  Filed
      herewith.




Table
          of Contents
 43


**TBS
      INTERNATIONAL LIMITED & SUBSIDIARIES**




**Signatures**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this Quarterly Report on Form 10-Q to be signed on its behalf
      by the undersigned, thereunto duly authorized, on the 8 th day of
      November 2006.





**TBS
                INTERNATIONAL LIMITED**(Registrant)/s/
                Joseph E.
                RoyceJoseph
                E. Royce
              President
                and Chief Executive Officer/s/
                Ferdinand V.
                LepereFerdinand
                V. Lepere
              Senior
                Vice President, Chief Financial Officer and Chief Accounting
                Officer









































Table
          of Contents
 44